Financial innovation and portfolio selection

Financial innovation can have a substantial effect on the level and structure of household assets and liabilities and on the financial risks to which households are exposed. As a consequence, there is interest in monitoring changes in household portfolios in order to assess the possible positive and negative impacts of financial market developments on households.

Access to credit and borrowing constraints

Liquidity, the cost of debt and other constraints can substantially affect the borrowing of some households. Analysis of the wealth and other financial circumstances of households at the individual level can provide useful insights into the nature and effect of such constraints and into their association with financial hardship and the inability to smooth income shocks.

Retirement funding and pension policies

In order to assess the adequacy of retirement savings and the possible risk to these savings from asset meltdowns or other financial shocks, it is important to know the level and composition of assets of households whose main income earner is at or close to retirement. This may be of particular interest in countries where there are government incentives to take up certain types of assets, e.g. tax incentives for employees to make their own contributions to pension funds, as part of a strategy to encourage saving for retirement. To assess the effectiveness of these policies, it is important to know whether such incentives are leading to higher savings or to a shift away from other products in asset portfolios.

Micro simulations of household behaviour

Micro simulations, based on models of individual household behaviour, can be used to simulate the behaviour of all households and therefore explore different scenarios. The incorporation of wealth variables into such models can provide important insights into the possible effects of a range of financial shocks and policy changes.

Derivation of distributional indicators for use in the national accounts

As already indicated when discussing macro wealth statistics, micro data on household wealth have the potential to provide distributional information that could be used to disaggregate national accounts wealth measures. Macro wealth measures are typically compiled from sources that do not provide information at the individual household level. However, micro wealth statistics can provide such information - which is essential for producing distributional indicators - as they are typically compiled from survey data reported by individual households.

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