| Abstract: |
From 1995 to 2005, the average urban household saving rate in China rose by 7
percentage points, to about one quarter of disposable income. We use
household-level data to explain why households are postponing consumption
despite rapid income growth. Tracing cohorts over time indicates a virtual
absence of consumption smoothing over the life cycle. Saving rates have
increased across all demographic groups although the age profile of savings
has an unusual pattern in recent years, with younger and older households
having relatively high saving rates. We argue that these patterns are best
explained by the rising private burden of expenditures on housing, education,
and health care. These effects and precautionary motives may have been
amplified by financial underdevelopment, as reflected in constraints on
borrowing against future income and low returns on financial assets. |