OECD HOUSEHOLDS ASSETS DATABASE - 7HA

1. OECD HOUSEHOLDS� ASSETS DATABASE - 7HA Working Party on Financial Statistics meeting Paris, 13-14 October 2008

2. Objectives of the presentation Situation of the OECD households� assets database Possible uses of this data collection Future improvements and developments

3. Background Data on households� assets has been collected following discussions on the importance of knowing and understanding the financial risks borne by households. In May 2005, an additional yearly table (Table 7HA) has been sent in parallel to the joint OECD/Eurostat questionnaire on Financial Accounts. The table 7HA introduced: A finer classification of two financial assets defined in the System of National Accounts 1993 : Mutual fund shares AF52 and Net equity of households in life insurance reserves and in pension funds AF61; Four non-financial assets, of which the total AN and some components like dwellings AN1111 and land AN211.

4. Situation of the OECD households� assets database (7HA) The database already contains data for 28 countries. Missing countries are Iceland and Luxembourg. 23 countries report 2007 data. Most countries provide data back to 1995 as requested, except Ireland, Japan, Korea, Mexico and Switzerland. 15 countries cover data for the sector S14 (Households) as requested, and 13 for the aggregated sector S14_S15 (Households and non-profit institutions serving households) Data are either consolidated or non-consolidated, according to the reporting country.

5. Situation of the OECD households� assets database Asset coverage On the financial side: AF52: 13 countries provide all its sub-components; AF611: 16 countries provide all its sub-components; AF612: among the 23 countries which cover this instrument : 12 countries report data on pension plans managed by autonomous pension funds and its sub-components; 2 countries on pension plans managed by non-autonomous pension funds and its sub-components; 4 countries on insured pension plans and its sub-components. AF613 and AF614: Few countries report data for these two assets (3 and 2 respectively). On the non-financial side: 11 countries provide total non-financial assets AN; Only 6 countries report both dwellings and land.

6. Situation of the OECD households� assets database 7HA The most complete questionnaires received in 2008 are from Italy France Belgium, Finland, Sweden. 22 countries filled the methodological survey. However, only 15 include detailed information on deviations from definitions. The entire database is on the OECD data warehouse called �OECD.STAT�. No paper publication and CD-ROMs are released for the moment.

8. Study on households� wealth across OECD countries over the period 1995-2006 Evolution of the composition of households� financial balance sheet over the period 1995-2006 (based on data from tables 710 and 720). It describes and characterizes the behaviour and preferences of households; It highlights OECD countries where households prefer to invest in investment fund shares AF52, or in life insurance contracts AF611 or in pension funds AF612. Evolution of the share of total non-financial assets in the households� wealth from 1995 to 2006 (based on data from table 7HA).

9. 1. Composition of households� financial balance sheet over the period 1995-2006 In 1995: The financial balance sheet of European and Japanese households was mainly made up of currency and deposits AF2. It represented more than 60% of the total financial assets in SVK, FIN, POL, AUT. Except in Netherlands and in the United Kingdom where households preferred to invest either in contracts in pension funds AF612 (42%) or in life insurance reserves AF611 (49%) respectively. Australia was just behind Netherlands in terms of AF612 holdings with 41% of total financial assets. In Mexico and in United States, households rather staked their savings into shares and other equity AF51 (respectively 56% and 37%). French households held the highest share of investment fund shares AF52 (13%). In Belgium and in Italy, securities holdings AF33, represented almost 30% of the total financial assets.

10. 1. Composition of households� financial balance sheet over the period 1995-2006 1995-2000: Highest point of the stock exchange performances. General decline in AF2 households� holdings in particular in FIN, ITA and SWE. Substantial increase of the share of shares and other equity AF51 in the total financial assets because of stock and share appreciations, with one exception Mexico where households strongly increased their holdings in securities AF33 to the detriment of shares. Significant increase of holdings in investment fund shares AF52 in European countries and in the United States, in particular in ITA, AUT, FIN, GRC, HUN, NOR, SWE and BEL. Rapid developments of contracts in life insurance AF611 and in pension funds AF612; but different levels across countries.

11. 1. Composition of households� financial balance sheet over the period 1995-2006 2000-2006: The share of AF2 still decreased but to a lesser degree than in the previous period because of the burst of the stock exchange bubble that brought down prices of shares and other equity AF51. However, the share of AF2 remains important in households� financial balance sheet except in USA and in MEX. Shares of contracts in life insurance reserves AF611 and in pension funds AF612 continued to increase. Three groups can be distinguished for these two cumulated assets: GBR, AUS, NLD: the weight of AF611 and AF612 exceeds 50% of total financial assets; CHE, SWE, NOR, FRA: the weight of these two assets is between 30 to 40 %; JPN, BEL, KOR, AUT, FIN, PRT, HUN, CZE, ESP: between 13 to 25%. Holdings of investment fund shares AF52 on average were superior to the ones in securities AF33 in BEL, USA, AUT, ESP and SWE. In 2006, in OECD countries, households� holdings in shares and other equity AF51 remains important.

12. 2. Share of total non-financial assets in households� wealth from 1995-2006 Analysis only carried out for ten OECD countries because of a lack of information. Among these ten countries, only six countries provide data on both dwellings and land: AUS, CAN, CZE, DEU, FRA and ITA The share of total non-financial assets AN in households� wealth is superior to the one of financial assets in most countries over the period 1995-2006, except in Netherlands and in the United States. Dwellings AN1111 are predominant for four countries out of the six; they represent on average 77% of total non-financial assets in Italy, 75% in Czech Republic, 59% in Germany and 46% in Canada. In Australia, the share of land AN211 is more important and continues to increase over the period. In France, dwellings are predominant until 2003. However, since 2004, the share of land in total non-financial assets exceeds the one of dwellings.

13. Study on financial risks borne by households over the period 1995-2006 The study on the composition of households� financial balance sheet , based on financial balance sheet data, enabled to distinguish OECD countries for which households preferred to invest their savings in : Investment fund shares AF52: BEL, USA, AUT, SWE. In life insurance reserves AF611: GBR, FRA, BEL, KOR, SWE, JPN, AUT. In pension funds AF612: AUS, NLD, CHE, USA, NOR, SWE. The study on financial risks borne by households, based on data from the 7HA database, only focuses on OECD countries mentioned above, when data are available in the 7HA database.

14. Financial risks borne by households investing in investment fund shares AF52 In Belgium: In 1995, households mainly held bond fund shares AF523 (51%) which are less risky than equity fund shares AF525 (11%). From 1995-2006, the share of AF523 decreased from 51% to 14% and in parallel the share of other fund shares AF526 increased from 13% to 57%. This residual category (AF526) might cover any shares of funds not classified in the five categories (AF521,�, AF525). Therefore, it is difficult to appreciate the risk borne by households investing in AF526. In 2006, households hold 16% of AF52 in equity fund shares AF525. In the United States: Over the period, households hold mainly equity fund shares AF525 which offer the highest return potential but are subject to higher price volatility. The share of bond fund shares AF523 and of money market fund shares AF521 is not negligible; they represent on average respectively 22% and 25% of the total investment fund shares.

15. Financial risks borne by households investing in investment fund shares AF52 In Austria: Households hold bond fund shares AF523, mixed fund shares AF524 and equity fund shares AF525. From 1999-2006, the share of AF523 decreased from 54% to 34% and in parallel the ones of AF524 and AF525 increased from 31% to 42% and from 14% to 34% respectively. Austrian households choose to invest their savings in riskier assets to gain high returns. In Sweden: Households hold mainly equity fund shares AF525. Its share fluctuates between 90% to 76% over the period 1997-2006. Swedish households hold risky assets and long-term investments.

16. Financial risks borne by households investing in life insurance reserves AF611 From 1995-2006, the share of net equity of households in non unit-linked life insurance reserves AF6111 is largely superior to the one of net equity of households in unit-linked life insurance reserves AF6112 for the four selected OECD countries � FRA, BEL, SWE, AUT. Nevertheless, in France, Belgium and Austria, the share of AF6112 is growing over the period 1995-2006 while the share of AF6111 is decreasing. In France, households hold 25% of their life insurance contracts in AF6112 in 2006, in Belgium, this proportion even reaches 33% . In Sweden, the share of AF6111 is increasing over the period and reaches 83% of the total life insurance reserves in 2006. The share of AF6112 is decreasing from 29% to 17%. In these four OECD countries, households prefer to purchase AF6111 contracts where the risk is clearly borne by the insurance company. However, the share of AF6112 where the risk is borne by the subscriber, is not negligible.

17. Financial risks borne by households investing in pension funds AF612 In Australia: 100% of net equity of households in pensions funds AF612 are pension plans managed by autonomous pension funds AF6121. Over the period1995-2006, the share of defined contribution plans (DC) AF61213 increased of 21% from 53% in 1995 to 64 % in 2006, while the share of defined benefit plans (DB) AF61211 decreased of 70% from 18% in 1995 to 6% in 2006; the share of hybrid plans AF61212 remained stable. Households� preferences are in favour of risky assets as they hold mainly DC plans AF61213, for which the risk is entirely borne by the individual. In Netherlands: 100% of net equity of households in pensions funds AF612 are pension plans managed by autonomous pension funds AF6121, of which 99% are defined benefit (DB) plans AF61211.

18. Financial risks borne by households investing in pension funds AF612 Comparing to Australian households, Dutch households have contrary behaviours as they choose to invest in defined benefit plans where the risk is mainly borne by the unit which is responsible for the investment risk and portfolio management. In Switzerland: Net equity of households in pensions funds AF612 is divided into pension plans managed by autonomous pension funds AF6121 (80%), and insured pension plans AF6123 (20%). 100% of AF6121 and 100% of AF6123 are hybrid plans. In the United States: Net equity of households in pensions funds AF612 is divided into pension plans managed by autonomous pension funds AF6121 (80%), and insured pension plans AF6123 (20%). 65% of pension plans managed by autonomous pension funds AF6121 are DB plans and 35% are DC plans. There is no detailed information on the breakdown of insured pension plans.

19. Financial risks borne by households investing in pension funds AF612 In Sweden: In 1995, households held: Insured pension plans AF6123 for 66%; Pension plans managed by non-autonomous pension funds AF6122 for 23%; Pension plans managed by autonomous pension funds AF6121 for 10%. During 1995-2006, holdings in AF6123 decreased but remained predominant at 57% in 2006. There is no detailed information on the breakdown of AF6123. The share of AF6121 increased substantially and reached 34%, while the share of AF6122 declined to 9%. 77% of AF6121 are DC plans and 90% of AF6122 are DB plans. Swedish households prefer to invest in: Insured pension plans ; In DC plans managed by autonomous pension funds, which are risky assets.

20. Financial risks borne by households investing in pension funds AF612 The study on five OECD countries for which AF612 is important in households� financial balance sheet shows: Pension schemes are different across countries; The majority of pension plans are managed by autonomous pension funds AF6121; Inside this category, there is no evidence regarding the preference of households between DB or DC plans; Pension plans managed by insurance companies AF6123 are quite important in Sweden and not negligible in Switzerland and in the United States. The pension spending effort might increase significantly over the coming decades in response to population ageing. People will need to save more for their own retirement via private pension schemes or via life insurance contracts.

21. Further improvements and developments of the OECD households� assets database � 7HA Improvements regarding: The asset coverage; in particular on non-financial assets as well as on sub-categories of investment fund shares and of net equity of households in pension funds; Detailed methodological notes, sent along with the table 7HA; The consistency between data series reported in the 7HA questionnaire and data received in the framework of the financial balance sheet accounts for the households� sector. Possible developments: In table 7HA, only stocks and assets are requested. Information on flows would be useful to distinguish if the increase of a specific asset is due to an appreciation of its value, or if households invest more in this asset.

22. Proposals The OECD Secretariat would like to discuss with WPFS delegates: The possibility of increasing the number of data series reported by countries in the yearly questionnaire on households� assets; The suppression of certain breakdowns if only a small number of countries can provide such data; The development of detailed metadata; The improvement of the consistency between data provided in both questionnaires : 7HA and the financial balance sheet accounts, in particular regarding sectors covered and data provided for the sub-categories of assets; The usefulness of collecting liabilities, in particular consumer credits and mortgage loans; The usefulness of collecting transactions in addition to stocks.

23. Conclusions The aim of this presentation was : To highlight the importance of both availability and quality of data and metadata provided by OECD member countries in the framework of households� assets questionnaire - 7HA; To present an analysis on the households� wealth and on the financial risks borne by households. Depending on future resources and on priorities elaborated by delegates of the WPFS and by the Secretariat, the OECD financial statistics unit will continue to work on further improvements and developments of the households� assets database 7HA. The OECD Secretariat thanks the delegates and all financial experts for their co-operation and contributions to the 7HA database during the past year.

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