The pure economic definition of saving is the change in the wealth or net worth of households from one period to the next. In this context, an important limitation of conventional measures of saving is that they do not take into account the effect of changing asset values on the wealth of households.
There have been several attempts to estimate Australian net private sector wealth. Treasury has published annual estimates of Australian net private sector wealth since the Summer 1990 issue of the Economic Roundup. These estimates relate to financial and physical wealth only and do not make any attempt to value natural resources or human capital. Chart 12 shows annual economic saving of the private sector as measured by the annual growth in real and nominal private net wealth (at market value) over the period since the early 1960s. The growth in real wealth has been volatile over time, particularly through the 1970s and 1980s, where high inflation appears to have had a significant impact. In the 1990s, growth in real wealth has generally exceeded its long run average with lower volatility than previous decades due to lower inflation. Although the rate of growth of both nominal and real wealth was slower through the year to June 1998 than in the previous year, real wealth continued to grow faster than its long run average.
Chart 12: Growth in Australian net private sector wealth at market value(a)
(a) As at June 30.
Source: Treasury update of estimates in the Summer 1999 Economic Roundup.
With the publication by the ABS of the National Balance Sheet it is also possible to obtain a measure of net household saving based on the change in net worth from 1989-90 to 1997-98. The National Balance Sheet values some assets (produced assets) on a replacement cost basis and other assets on a market value basis, whereas the Treasury wealth measure estimates the value of all assets on a market value basis. This is the principal difference between the ABS and Treasury wealth measures. Although the ABS measure includes some asset categories not included in the Treasury measure, neither of the measures attempts to value human capital. Chart 13 shows the annual growth in real and nominal private wealth of households under the ABS measure. As with the Treasury measure, real net wealth has grown strongly through most of the 1990s. However, the relatively short history of this series cautions against reading too much into these data in relation to longer term trends.
Chart 13: Growth in private net worth
Source: ABS Cat. No. 5241.0.
In summary, the Treasury and ABS measures of net private sector wealth suggest that the real net worth of Australian households has grown strongly in the 1990s. As net wealth measures include the full effects of asset revaluations (both appreciation and depreciation), they are not directly comparable in level terms to the private saving measures in Charts 8 and 12. Nevertheless, net wealth measures are consistent with the view that private saving (whether measured on a gross or net basis) has shown only a mild downward trend, if any, over recent decades.
The significant decline in the ABS net household saving ratio since the mid-1970s appears to reflect limitations in the measurement and classification of this measure rather than a significant change in saving behaviour.
Broader measures of the saving behaviour of Australian households, such as gross and net private saving (particularly after adjustment for inflation) and changes in net worth, present a much different picture. While there are uncertainties about the appropriate definition and measurement of saving, these broader measures of private saving have shown a much less pronounced downward trend than the ABS net household saving ratio.
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22 The higher level of fluctuations in net wealth measures reflects the inclusion of asset revaluations