Life Cycle Savings in a High-Informality Setting : Evidence from Pakistan
The combined forces of population aging, weakening family and village risk-sharing networks, and low formal pension coverage will make financing elderly consumption a major challenge for the future. This study examines whether households in high-in...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
Washington, DC : World Bank
2022
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/099335107072219949/IDU0bb79ceea0247c040340b67c085a6df6f5df5 http://hdl.handle.net/10986/37666 |
| Summary: | The combined forces of population
aging, weakening family and village risk-sharing networks,
and low formal pension coverage will make financing elderly
consumption a major challenge for the future. This study
examines whether households in high-informality settings,
where participation in pension schemes is rare, accumulate
wealth over the life cycle and what mix of assets and
liabilities composes that wealth. Pakistan is an ideal
setting, with 88.5 percent of the population in informal
employment and limited wide-scale social protection
targeting the elderly. Data on housing wealth, land
holdings, financial wealth, household durables, and owned
businesses are assembled from eight rounds of representative
household surveys that span 18 years (2001–18). Changes
associated with age are disentangled from differences
between cohorts and year effects by applying decomposition
analysis. The average informal Pakistani household
accumulates 4.2 years’ worth of consumption between the
head’s ages of 25 and 65, mostly in the form of residential
housing. Wealth accumulation is slower early in the life
cycle and picks up speed between ages 40 and 65. Land is an
important part of rural households’ portfolio but grows
little over the life cycle (10 months’ worth). More liquid
forms of wealth such as financial wealth also grow with age,
but in much more modest amounts. Overall, consistent with
improving living standards and expectations that family
support may be less available than in the past, the fraction
that reaches old age with significant net worth has
increased over the period analyzed, suggesting a potential
demand for long-term saving schemes designed for the
informal sector. |
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