1. Determinants of household wealth and indebtedness in Slovakia Teresa Messner & Tibor Zavadil National Bank of Slovakia 11 June 2014 NBS research seminar

2. 11 June 2014 NBS research seminar 2 Outline Motivation Data Model Results Conclusion

3. Motivation 3 NBS research seminar What determines household wealth in Slovakia?  High real estate ownership, but low debt in SK Household Finance Consumption Survey (HFCS)  Economic convergence in financial assets, living standards and debt  Accumulation of wealth and/or debt Brandmeir et al. (2012), Revoltella and Mucci (2005), Barrell et al. (2009)  Regional differences in household wealth across SK Messner and Zavadil (2014) 11 June 2014

4. Data Slovak data from the 1 st wave of HFCS (2010): − household assets, liabilities, income, consumption Net sample: 2,057 households Missing values multiply imputed (5 implicates) Weights calibrated to population totals  representativeness on regional level + Regional data from Slovak Statistical Office NBS research seminar 411 June 2014

5. Approach  3 groups of characteristics: household, household head and region  Final estimates = average of estimates over all 5 implicates (imputation sets)  Standard errors calculated by Rao-Wu rescaling bootstrap using 1,000 replicate weights 5 NBS research seminar 11 June 2014

6. Model NBS research seminar 611 June 2014

7. Instruments NBS research seminar 711 June 2014

8. 8 1.Household characteristics Determinants of indebtedness (1) NBS research seminar Mortgage debtNon-mortgage debt Log(income) 0.0130.034 Income expectations (RG = neutral) Pessimistic 0.022 Optimistic 0.322 **-0.334 ** Net liquid asset to income ratio -0.048-0.899 *** Way of acquisition of HMR (RG = purchased) Self construction 0.144-0.103 Inheritance -1.061 ***0.001 Gift -0.814 ***0.071 Does not own HMR -1.915 ***-0.044 HMR acquired after 1991 0.928 ***0.267 ** Number of adult members (16+ years) -0.136 **0.153 ** Number of children in household 0.124 *-0.076 11 June 2014 Significance levels: * = 10%, ** = 5%, *** = 1%

9. 9 2.Household head characteristics Determinants of indebtedness (2) NBS research seminar Mortgage debtNon-mortgage debt Marital status (RG = married / in partnership) Single -0.1610.145 Divorced -1.032 **-0.325 Widowed -0.0570.186 Age group (RG = 35 – 44 years) 16 – 24 years -0.039-0.210 25 – 34 years 0.368 ***0.044 45 – 54 years -0.393 ***0.004 55+ years -0.546 ***-0.308 * Working status (RG = employed) Self-employed 0.1300.178 Unemployed 0.1820.365 Retired -0.991 *-0.288 Other not working -0.317-0.011 Educational attainment (RG = secondary education) Primary -0.345-0.654 ** Tertiary 0.011-0.055 11 June 2014

10. 10 3.Regional characteristics Determinants of indebtedness (3) NBS research seminar Mortgage debtNon-mortgage debt Size of municipality (RG = 100,000+ inhabitants) 100,000 – 20,001 -0.373 *-0.454 ** 20,000 – 2,001 -0.145-0.481 ** less than 2,000 0.046-0.390 * GDP per capita (in 1,000 EUR) 0.075 **0.226 *** Unemployment rate (in %) -0.294 **-0.785 *** Log(population) 0.7762.273 *** Area (1,000 km 2 ) 0.272 **0.865 *** Average living area of residence 0.043 *0.101 *** 11 June 2014

11. 11 Typical indebted household NBS research seminar MORTGAGE DEBTNON-MORTGAGE DEBT A typical indebted household … has positive income expectationsdoes not have positive income expectations purchased or self-contracted HMR has few liquid assets acquired HMR after 1990 consists of fewer adults and more childrenconsists of more adults … has the reference person that … is not divorced is between 25-34 years old is below 55 years old is not retiredhas at least secondary education … and lives in … a big city or a small town / villagea big city a region with high GDP per capita a region with low unemployment a more populated region a large region a region with larger residential areas 11 June 2014

12. 12 1.Household characteristics Determinants of wealth (1) NBS research seminar Total net wealthFinancial net wealth Probability of mortgage debt 33,6292,756 Probability of non-mortgage debt-148,871 ***-63,884 *** Log(income) 17,733 ***3,259 *** Way of acquisition of HMR (RG = purchased) Self construction 47,683 ***-3,506 ** Inheritance 20,266 *** -729 Gift 4,6973,241 Does not own -48,434 *** 498 Number of adult members (16+ years) 10,279 ***3,243 *** Number of children in household -3,983-1,710 *** 11 June 2014

13. 13 2.Household head characteristics NBS research seminar Determinants of wealth (2) Total net wealthFinancial net wealth Marital status (RG = married / in partnership) Single -3,971 654 Divorced -7,786 -2,398 * Widowed -7492,364 ** Age group (RG = 35 – 44 yrs) 16 – 24 years -13,433-3,761 * 25 – 34 years -15,546 **118 45 – 54 years -5,122-140 55+ years -1,848-4,226 *** Working status (RG = employed) Self-employed 54,211 ***8,064 *** Unemployed 73,776 **10,600 *** Retired -15,320 **-1,634 Other not working 4,083 1,199 Educational attainment (RG = secondary education) Primary -17,578**-7,723 *** Tertiary 19,771***-1,130 11 June 2014

14. 14 3.Regional characteristics NBS research seminar Determinants of wealth (3) Total net wealthFinancial net wealth Size of municipality (RG = 100,000+ inhabitants) 100,000 – 20,001 -29,433 *** -4,353 *** 20,000 – 2,001 -47,144 ***-5,852 *** less than 2,000 -58,439 *** -4,320 *** GDP per capita (in 1,000 EUR) 7.804 ***2.947 *** Unemployment rate (in %) -24,191 ***-10,217 *** Log(population) 134,018 ***32,974 ** Area (1,000 km 2 ) 23,271 ***11,040 *** Average living area of residence 4061,099 *** 11 June 2014

15. 15 Typical wealthy household NBS research seminar TOTAL NET WEALTHFINANCIAL NET WEALTH A typical wealthy household … does not have non-mortgage debt has high income owns its HMR that was self-constructed or inherited did not self-construct its HMR consists of more adultsconsists of more adults and fewer children … has the reference person that … is widowed or not divorced is middle-aged or older, but not retiredis middle-aged is self-employed has tertiary educationhas at least secondary education … and lives in … a big municipality a region with high GDP per capita a region with low unemployment a large and highly populated region a region with large residential areas 11 June 2014

16. Conclusion  Non-mortgage debt has a detrimental effect on wealth.  Discourage households to take out excessive consumer loans!  The effect of mortgage debt is neutral (insignificantly positive).  Residence ownership – important part of household wealth.  Support young families to buy a housing property!  Education has highly positive effect on wealth.  Improve education and financial literacy!  Healthy economic environment improves household well-being.  Focus on underdeveloped regions! NBS research seminar 16 11 June 2014

17. Thank you for your attention! Results available soon as NBS Working Paper Contact: Teresa.Messner@gmail.comTeresa.Messner@gmail.com Tibor.Zavadil@nbs.sk