Discussion Paper No. 763

THE (DIS)SAVING BEHAVIOR
OF THE AGED IN JAPANCharles Yuji Horioka

December 2009

The Institute of Social and Economic Research
Osaka University
6-1 Mihogaoka, Ibaraki, Osaka 567-0047, Japan

THE (DIS)SAVING BEHAVIOR OF THE AGED IN JAPANby Charles Yuji Horioka*
Institute of Social and Economic Research, Osaka University, andNational Bureau of Economic Research, Inc.
December 23, 2009
Abstract: In this paper, I survey the previous literature on the saving behavior of the aged in Japanand then present some survey data on the saving behavior of the aged in Japan that became available
recently.

To summarize the main findings of this paper, virtually all previous studies as well as the

newly available data I analyze find that the retired aged dissave and that even the working aged
dissave, at least at advanced ages.

Moreover, there has been a sharp increase in the dissaving of theretired aged since 2000, with the increase being due primarily to reductions in social security
benefits, increases in consumption expenditures, and increases in taxes and social insurance
premiums.

These findings are consistent with the life-cycle model and suggest that this model ishighly applicable (and becoming increasingly applicable over time) in the case of Japan.
Keywords: Age structure of the population, aged, aging, consumption, dissaving, elderly,households, Japan, life-cycle model, life-cycle hypothesis, retirement, saving, saving rate
Journal of Economic Literature classification numbers: D12, D91, E21
Note: I am indebted to James Albrecht, Robert Dekle, Eric French, Minchung Hsu, John Bailey
Jones, Sung Jin Kang, Wataru Kureishi, Tsutomu Miyagawa, Oleksandr Movshuk, Junichi Nomura,
Masao Ogaki, Shizuka Sekita, Etsuro Shioji, Midori Wakabayashi, Kenichi Ueda, Yi Wen, Shoichi
Yamashita, and the participants of the Third Workshop on Comparative Analysis of Consumption
and Saving Behavior in East Asian Countries, held at the International Centre for the Study of East
Asian Development (ICSEAD) in Kitakyushu, Japan, of the Workshop on the Aging Economy heldat the Aging Economy Research Center, National Cheng Kung University, Tainan, Taiwan, of the
Tsinghua Workshop on Macroeconomics held at the School of Economics and Management,
Tsinghua University, Beijing, China, of the Far East and South Asia Meeting of the EconometricSociety (FESAMES) held at the University of Tokyo, and of the 11th Macroeconomics Conference
held in Osaka for their valuable comments and assistance and to the Ministry of Education, Culture,
Sports, Science, and Technology of the Japanese Government for Grant-in-Aid for Scientific
Research Category B (topic number 18330068) and Category S (topic number 20223004) and to the
Global Center of Excellence (GCOE) Program of the Graduate School of Economics and theInstitute of Social and Economic Research of Osaka University, all of which supported this research.

*Correspondence to: Charles Yuji Horioka, Institute of Social and Economic Research, Osaka
University, 6-1, Mihogaoka, Ibaraki 567-0047, JAPAN.

E-mail: horioka@iser.osaka-u.ac.jp

1. Introduction
Weil (1994) notes in his seminal paper that there is a discrepancy between the macroevidence and the micro evidence on the applicability of the life-cycle model, with studies basedon macro (cross-country) data suggesting that the age structure of the population has the
expected impact on the saving rate but studies based on micro data on the saving behavior of theaged showing little tendency for the aged to dissave.

Thus, the macro evidence suggests thatthe life-cycle model applies in the real world whereas the micro evidence suggests that it does
not.
Does the same discrepancy exist in Japan?

Horioka (1997) and Horioka and Yin(2009) have found using macro (time series) data for Japan that the age structure of the
population has the expected impact on the saving rate, and in this paper, I analyze micro data on
the saving behavior of the aged in Japan.

I first survey the previous literature on the saving

behavior of the aged in Japan and then present some survey data on the saving behavior of theaged in Japan that became available recently.
To summarize the main findings of this paper, virtually all previous studies as well as
the newly available data I analyze find that the retired aged dissave and that even the working
aged dissave, at least at advanced ages.

Moreover, there has been a sharp increase in the

dissaving of the retired aged since 2000, with the increase being due primarily to reductions insocial security benefits, increases in consumption expenditures, and increases in taxes and social
insurance premiums.

These findings are consistent with the life-cycle model and suggest that

this model is highly applicable (and becoming increasingly applicable over time) in the case ofJapan.

Thus, there does not appear to be any discrepancy between the macro and micro

evidence in the case of Japan, with both types of evidence suggesting that the life-cycle model ishighly applicable in the case of Japan.

1This paper is organized as follows: in Section 2, I conduct a selective survey of theprevious literature on the saving behavior of the aged in Japan; in Section 3, I present somesurvey data on the saving behavior of the aged in Japan that became available recently; inSection 4, I present other evidence on the applicability of the life-cycle model in the case ofJapan; and Section 5 concludes and explores the policy implications of my findings.

2. A Survey of the Previous Literature on the Saving Behavior of the Aged in Japan
In this section, I conduct a selective survey of the previous literature on the saving
behavior of the aged in Japan (see Horioka and Kan (2009) for a more exhaustive survey of theliterature on Japan as well as that on other countries).
Although it is easy to speak about the saving of the aged in theoretical terms, it isnotoriously difficult to measure it in actual practice, and as a result, no consensus has beenreached about whether or not the aged dissave.

Just to enumerate some of the problems thatarise when one wants to measure the saving of the aged, one problem is that the unit ofobservation of the data that are available is almost always the household, and hence it is notpossible to obtain direct data on the saving of the aged individuals who live in multi-generation
households.

This problem is especially severe in Japan, where there are so many extended

families (households in which parents and their grown children live together).

According to

the Population Census of the Japanese Government, the proportion of the aged who live with
their children was a full 73.4 percent in 1980, and although this proportion has declined steadily
since then, it was still 49.6 percent in 2005, according to the Population Census (Statistics
Bureau, Ministry of Internal Affairs and Communications, Government of Japan (2009)).
Second, households are usually classified by the age of the household head, and sinceaged household members are not necessarily the household head (in fact, they usually are not2because the head is defined as the household member with the highest income), data are notavailable on the saving of aged individuals who are not household heads (primarily aged
individuals who live with their children, hereafter referred to as ‘dependent aged’).

This isespecially unfortunate in the case of Japan because, as noted earlier, in the past, the majority of
the aged in Japan lived with their children and most of them were not classified as thehousehold head and because these dependent aged are very different from the independent aged(for example, they are presumably poorer, on average).
Third, most household surveys survey only households with two or more persons, andhence no data are available on one-person aged households even though they comprise a
non-negligible and growing share of all aged households (their share more than doubled from
10.8 percent in 1980 to 22.5 percent in 2005, according to the Population Census (Statistics
Bureau, Ministry of Internal Affairs and Communications, Government of Japan (2009))) andeven though they may be very different from aged households with two or more persons (forexample, they are presumably poorer, on average).
Because of these data limitations, most previous researchers were forced to look atdata on the saving of households with two or more persons whose head is aged and to makeinferences about the saving of all aged individuals based on these data.

However, the three

aforementioned problems apply in the case of such data: first, such data pertain to the household
as a whole and include the saving of not only the aged head but also of his/her spouse,cohabiting children, cohabiting grandchildren, etc., many of whom are not aged; second, suchan analysis totally ignores the saving of aged individuals who are not household heads andimplicitly assumes that their behavior is identical to that of aged heads; and third, such ananalysis ignores one-person aged households and implicitly assumes that their behavior is
identical to that of aged households with two or more persons.

3Thus, even if one finds that households with two or more persons headed by an aged
individual in Japan do not dissave, one cannot conclude that all aged in Japan do not dissave.
First, the failure of the independent aged to dissave could merely reflect the positive saving of
cohabiting children and other cohabiting family members.

Second, aged heads are, on average,

more affluent than dependent aged and hence are more likely to be able to save.

Third, aged

households with two or more persons are, on average, more affluent than one-person households
and hence are more likely to be able to save.
The seminal paper by Hayashi, Ando, and Ferris (1988) is an important addition to theliterature on the saving behavior of the aged because it is the first attempt to estimate the saving
behavior of aged persons living in extended families.

The ingenious method they use toindirectly infer the stock (flow) of saving of such aged is to assume that the stock (flow) ofsaving of younger generations living in extended families is identical to that of similarly aged
nuclear families and to compute the stock (flow) of saving of older generations living in
extended families as the total stock (flow) of saving of extended families minus the stock (flow)of saving of the younger generation.1

They apply this method to micro data from the 1984

National Survey of Family Income and Expenditure, which is conducted every five years by theStatistics Bureau of the Ministry of Internal Affairs and Communications of the Government ofJapan.
Hayashi, Ando, and Ferris (1988) present the results for both the stock and flow ofsaving, but in my opinion, the results for the flow of saving are more reliable because (1) they
do not need to be adjusted for the so-called cohort effect, (2) they do not include
intergenerational transfers, and (3) they do not include capital gains and losses, allowing us tofocus on out-of-pocket saving.

Therefore, I focus on the results for the flow of saving in what

follows.

4

Hayashi, Ando, and Ferris’s (1988) results show that the flow of saving of the aged
living in extended families is positive for all but the oldest aged (i.e., those aged 87).
Moreover, their results for the independent aged show that their flow of saving is also positive
except for those aged 80 or older.

They do find, however, that one-person aged households of

all ages (who are relatively poor) dissave.

Thus, Hayashi, Ando, and Ferris’s (1988) results

provide some (but not overwhelming) support for the life-cycle model, with the majority of theaged in Japan continuing to save and only the oldest aged (i.e., those aged 80 or older) and oneperson aged households dissaving.
However, the fact that one-person aged households of all ages dissave and the fact thatmost aged dissave eventually (i.e., when they reach their eighties) provide some support for thelife-cycle model.

Moreover, one of the few defects of Hayashi, Ando, and Ferris’s (1988)

analysis is that it fails to control for the employment status of the aged.

The life-cycle model

predicts not that all aged will dissave but rather that the retired aged will dissave, and it ishighly likely that Hayashi, Ando, and Ferris (1988) would have found more widespread
evidence of dissaving if they had focused on the retired aged.

Put differently, I believe that thefact that they find any evidence at all of dissaving, even though they include the working agedin their sample, constitutes strong evidence in favor of the life-cycle model.
One analysis that is closely related to that of Hayashi, Ando, and Ferris (1988) and thattakes account of the employment status of the aged to some extent is that of Ishikawa (1988),
who uses data from the Family Saving Survey, conducted by the Statistics Bureau of the
Ministry of Internal Affairs and Communications of the Government of Japan, to analyze thesaving behavior of the dependent and independent aged in Japan.

Ishikawa (1988) finds thatthe presence of cohabiting aged parents has virtually no impact on the saving rate of young
households, which suggests that aged parents cohabiting with their children are neither saving

5

nor dissaving, but he has no information on whether the cohabiting parents are working or
retired.

However, he can break down the sample of independent aged into those who are

working and those who are retired and finds that the average total saving rates of salaried
workers (including corporate managers), self-employed and retired independent aged
households are 15.8 percent, 11.5 percent, and 1.5 percent, respectively, and that their average
financial saving rates are 8.5 percent, 4.7 percent, and –6.9 percent, respectively.

Thus, hefinds, as expected, that the saving rates of working and retired aged are very different, with theformer being positive and much higher than the latter, and the latter being roughly zero in thecase of the total saving rate and negative and large in absolute magnitude in the case of thefinancial saving rate.

Thus, the clearest evidence of dissaving by the aged can be found in

Ishikawa’s (1988) analysis of the independent retired aged, which is the only analysis discussed
so far that takes account of the individual’s employment status.
Another related study is Dekle (1990), which analyzes micro data from the “Survey on
the Living Behavior of the Aged (LBC Survey),” conducted by the Sociology Department of the
University of Tokyo for the Postal Annuities Bureau of the former Ministry of Posts andTelecommunications, a unique survey that samples dependent as well as independent aged.
Dekle (1990) finds that the total wealth of the dependent as well as independent aged in Japan
increases with age and that age has a positive but insignificant impact on the wealth holdings ofthe aged in Japan, which implies that, if anything, the aged continue to save in Japan, but hedoes not control for employment status.
Finally, data from the Household Survey of Financial Asset Choice, conducted by theInstitute of Posts and Telecommunications Policy of the former Ministry of Posts andTelecommunications, show that the independent retired aged dissave, on average, in Japan andthat even the working aged dissave, on average, at least after the age of 70 (see Horioka, et al.,6

1996, and Horioka et al., 2002).

This constitutes even stronger support for the applicability of

the life-cycle model of saving in Japan.
Thus, the previous evidence on the saving behavior of the aged in Japan is mixed, but
analyses that take account of employment status invariably find that the retired aged dissave, aspredicted by the life-cycle model.

3. Newly Available Data on the Saving Behavior of the Aged in Japan
In this section, I present newly available survey data on the saving behavior of theaged in Japan.

Unfortunately, no direct data on the saving behavior of the retired aged wereavailable in Japan until recently.

The Family Income and Expenditure Survey, conducted by

the Statistics Bureau of the Ministry of Internal Affairs and Communications of the Governmentof Japan, collects information on saving rates (‘ratios of surplus’) by age group of the household
head, but the problem is that, until recently, data on saving rates were collected only forsalaried-worker households (households in which the household head is a salaried worker).
Thus, even the data for aged households pertained only to aged households whose head was stillworking as a salaried worker, and no information was available on the saving rates of theretired aged even though it is their saving rate that is of most interest.
Table 1 shows data on saving rates by age group of the household head for salariedworker households with two or more members for the 1990-2008 period, and as can be seenfrom this table, the saving rates of aged households (households whose head is aged 60 or older)
is lower than that of younger households but is positive and large in absolute magnitude
nonetheless, ranging from 7.8 to 22.6 percent.

Looking at trends over time, the saving rates ofaged salaried-worker households declined more or less steadily during the 1995-2006 period,
from 22.6 percent in 1993 and 1995 to 7.8 percent in 2006, but rose to 9 to 11 percent in7

2007-08 and has always been positive and relatively large in absolute magnitude, even in recent
years.

However, these figures are not necessarily contrary to the life-cycle model because they

pertain to aged salaried-worker households.

What is needed is information on the saving rates

of retired aged households.
Fortunately, the Family Income and Expenditure Survey started collecting saving rate
data and other data on various categories of aged households, including retired aged households,
in 1995.

Thus, it became possible for the first time to know the saving rate of the retired aged.

Moreover, these data overcome two of the three data deficiencies discussed in section 2.

First,

data are available on aged couples, aged one-person households, and households all of whose
members are aged, thus circumventing the problem of cohabiting non-aged household members,
and second, data are available on one-person households beginning in 2005.
Table 2 shows data on the saving rates of various categories of retired aged households
for the 1995-2008 period, and as can be seen from this table, the saving rate of all six categories
of retired aged households is negative and large in absolute magnitude.

For example, thesaving rate of households with a retired head aged 60 or older ranged from -9.9 to –31.3 percent,that of households with a retired head aged 65 or older ranged from -8.8 to -25.5 percent, that ofretired households all of whose members are aged ranged from -5.2 to -25.0 percent, that ofretired aged couples with a husband aged 65 or older and wife aged 60 or older ranged from -4.0
to -25.5 percent, that of retired aged couples with both spouses aged 65 or older ranged from
-0.5 to -20.5 percent, and that of retired one-person households aged 65 or older ranged from
-20.0 to -28.0 percent.

Thus, the retired aged are dissaving as much as 25 to 31 percent of theirdisposable income every year!2
Trends over time differ from one category of retired aged households to another, but
most categories show a sharp increase (in absolute magnitude) in dissaving over most of the8period for which data are available.

For example, the dissaving rate of households with aretired head aged 60 or older increased sharply (in absolute magnitude) from -9.9 percent in1997 to -31.3 percent in 2008, that of households with a retired head aged 65 or older increased
sharply (in absolute magnitude) from -8.8 percent in 2000 to -25.5 percent in 2008, that ofretired households all of whose members are aged increased sharply (in absolute magnitude)from -5.2 percent in 2000 to -25.0 percent in 2007 before declining slightly, that of retired aged
couples with a husband aged 65 or older and a wife aged 60 or older increased sharply (inabsolute magnitude) from -4.0 percent in 2000 to -25.5 percent in 2008, and that of retired aged
couples with both spouses aged 65 or older increased sharply (in absolute magnitude) from -0.5
percent in 2000 to -20.5 percent in 2008 (data have not been available for a long enough period
to discern trends in the dissaving rates of retired one-person households aged 65 or older).
The main exceptions to the sharp upward trend in the absolute magnitude of dissaving rates are
the 1995-1997 period in the case of households with a retired head aged 60 years or older andthe 1995-2000 period in the case of retired aged households and retired aged couples with ahusband aged 65 or older and a wife aged 60 or older, when their dissaving rates declined inabsolute magnitude.

Thus, all categories of retired aged households have shown a sharp

downward trend in the absolute magnitude of their dissaving rates since at least 2000.
In order to shed light on the reasons for the sharp increase in dissaving during the
2000-08 period, I compare the income and expenditures of retired aged households in 2000
and 2008.

Unfortunately, this comparison can be done only for retired aged couples.

Itcannot be done for households with a retired head aged 60 or older, households with a retired
head aged 65 or older, or retired aged households because these groups do not include
one-person households until 2004 and include such households beginning in 2005, making it
impossible to obtain a consistent time series for the entire 2000-08 period, nor can it be done

9for retired one-person households because data are not available for this group until 2005.
Moreover, the data on retired aged couples are the “cleanest” data because they are notcontaminated by the saving, etc., of cohabiting non-aged household members.
Table 3 shows a decomposition of the increase in the absolute magnitude of thedissaving rate of retired aged couples with a husband aged 65 or older and a wife aged 60 orolder (retired aged couples with both spouses aged 65 or older) during the 2000-2008 period,
and as can be seen from this table, the main cause of the increase is the 8.0 (7.3) percent
decline in social security benefits (which explains 45.0 (42.8) percent of the increase indissaving), the second most important cause is the 59.5 (59.4) percent increase in non-living
expenditures (mostly direct taxes and social insurance premiums) (which accounts for 30.1
(30.1) percent of the increase in dissaving), and the third most important cause is the 4.8 (4.2)
percent increase in consumption expenditures (which accounts for 27.7 (30.1) percent of theincrease in dissaving).

The rate of increase in medical care spending was a whopping 19.3

(23.0) percent in the case of retired aged couples with a husband aged 65 or older and a wife
aged 60 or older (retired aged couples with both spouses aged 65 or older) during the 2000-08
period, and thus the increase in medical care spending accounted for a full 21.7 (24.5) percentof the increase in consumption expenditures during this period.

This is a bit surprisingbecause one would have expected the introduction of a public long-term care insurance system
in 2000 to reduce the out-of-pocket medical care spending of aged households.
The decline in social security benefits and the increase in non-living expenditures
presumably reduce consumer welfare, whereas the increase in consumption expenditures
presumably increases consumer welfare, and since the former two account for 75.2 (72.8)
percent or about three-quarters of the increase in dissaving in the case of retired aged couples
with a husband aged 65 or older and a wife aged 60 or older (retired aged couples with both

10

spouses aged 65 or older) during the 2000-08 period, it seems likely that the increase indissaving led, on balance, to a decrease in consumer welfare.
Public pension benefits were reduced in a number of ways as part of the 2000 reforms(for example, the earnings-related component was reduced by 5 percent for new retirees, thewage indexation of benefits was temporarily suspended, an earnings test was imposed on those
aged 65-69, and it was decided to gradually raise the pensionable age from 60 to 65 starting in2001 (see Horioka (2001) and Horioka, Suzuki, and Hatta (2007) for more details)), and thus it
is not surprising that public pension benefits fell so sharply after 2000.

The fact that there

was an especially sharp decline in social security benefits in 2001 suggests that the impact of
the aforementioned five percent cut in social security benefits was especially significant.
As for why social insurance premiums have increased so sharply, the main reason ispresumably the introduction of the public long-term care insurance program in 2000, whichcollects premiums from everyone over the age of 40 with no upper limit.

Social insurance

premiums for public old-age pensions are not collected after the age of 65 so increases thereincannot explain increases in the social insurance premiums of retired aged couples (except
when the wife is less than 65).
Note, finally, that there are a number of conceptual defects in the saving rate concept
used in the Family Income and Expenditure Survey.

First, gross concepts of saving anddisposable income (gross of depreciation) are used even though net concepts are preferable.
Second, the imputed rent on owner-occupied housing is not included in consumption or indisposable income, even though it should be.

Thus, the saving rate concept used in the Family

Income and Expenditure Survey is as follows:
SYG = SG/YDG,
where SYG = the gross household saving rate11

SG = gross saving
YDG = gross disposable income
Converting saving and disposable income to net terms and adding the imputed rent onowner-occupied housing to disposable income yields the following saving rate:
SYN = (SG – D)/(YDG – D + IR),
where SYN = the net household saving rate
D = depreciation on owner-occupied housing
IR = imputed rent on owner-occupied housing
If we assume that depreciation can be calculated as
D = d*H,
where d = the depreciation rate
H = the market value of owner-occupied housing
and that imputed rent on owner-occupied housing can be calculated as
IR = (r + d)*H,
where r = the interest ratethen the “correct” household saving rate can be rewritten as follows:
SYN = (SG – d*H)/(YDG – d*H + (r + d)*H)
which reduces to
SYN = (SG – d*H)/(YDG + r*H)
Thus, in the case of negative saving rates, the saving concept used in the Family
Income and Expenditure Survey is upward biased (in absolute magnitude) because thenumerator is upward biased by the inclusion of depreciation but is downward biased (in absolutemagnitude) by the exclusion of the foregone interest income from holding one’s wealth in theform of owner-occupied housing, meaning that the direction of the net bias is indeterminate a12

priori.

However, since interest rates have been close to zero in recent years, the former bias ispresumably larger (in absolute magnitude) than the latter bias, leading to an upward bias (inabsolute magnitude), on balance, meaning that correcting these biases would cause the dissaving
rates of the retired aged in Japan to be even larger (in absolute magnitude) than the unadjusted
figures suggest.3
I look finally at the rates of financial decumulation of retired households, which aredefined as the negative of the ratio of net financial saving (net purchases of financial assets
minus the net increase in liabilities) to beginning-of-period financial net worth (holdings offinancial assets net of liabilities).

I do not look at rates of total decumulation because no data

are available on the stock of real assets (land/housing) and because most Japanese households
do not draw down their stock of real assets (land/housing).

Table 4 shows data on the rates offinancial decumulation of retired aged couples with a husband aged 65 or older and a wife aged
60 or older (retired aged couples with both spouses aged 65 or older) during the 2003-2008
period, and as this table shows, the rates of financial decumulation of such households ranged
from 1.94 to 2.39 percent (1.01 to 1.98 percent), which implies a time horizon of 41.8 to 51.6
(50.5 to 98.8) years if we assume that households decumulate their assets at a constant rate fromnow until they pass away.

Thus, retired households in Japan decumulate their financial saving,as predicted by the life-cycle model.

Their rates of financial decumulation seem low at firstglance but are in the right ballpark if we take account of the defect in the saving data noted
earlier (the upward bias caused by the inclusion of depreciation, etc.), lifespan uncertainty,
and/or the presence of a bequest motive.

Another possibility is that unexpectedly large

increases in life expectancy made it necessary for the aged to reduce their rate of decumulation.4
As for trends over time in the rates of financial decumulation of retired aged couples,
they show no clear trend in the case of retired aged couples with a husband aged 65 or older and13

a wife aged 60 or older but some evidence of an inverted U-shaped trend during the 2003-2008
period in the case of retired aged couples with both spouses aged 65 or older, with suchhouseholds showing an increase in their rates of financial decumulation from 1.01 percent in2003 to 1.98 percent in 2006 followed by a drop back down to the original level of 1.01 percent
in 2008.

Thus, trends over time in the rates of financial decumulation of retired households arebroadly consistent with trends over time in the saving rates of such households in the case ofretired aged couples with both spouses aged 65 or older during the 2003-2006 period but not forother households or other time periods.
In sum, it appears that the tendency of the retired aged in Japan to dissave has always
been observed (at least since 1995) and that this tendency has become even more pronounced inrecent years.

This suggests that the life-cycle model of saving is highly applicable in Japanand that it has become even more applicable in recent years.

4. Other Evidence on the Applicability of the Life-Cycle Model in Japan
Note, moreover, that various other types of data and evidence also provide strong
support for the applicability of the life-cycle model of saving in Japan (see, for example,
Hayashi, 1986, 1997; Horioka, 1984, 1993, 2002; and Horioka et al., 2000).

For example,

Horioka and Watanabe (1997) decompose total household saving in Japan into saving forindividual motives and find that saving for retirement is by far the largest component,
accounting for a full 62.5 percent of total household saving.
As another example, econometric analyses based on time series data as well as
cross-country data (see, for example, Horioka, 1989, 1997, and Horioka and Yin, 2009) provide
strong evidence that the age structure of the population has a significant impact on household,private, and national saving rates, as predicted by the life-cycle model of saving.

14

As yet another example, Horioka (2002) and Horioka et al. (2000) find that the vast
majority of bequests in Japan are either unintended or accidental, arising from lifespan
uncertainty or are selfishly motivated bequests that are left in exchange for care, attention,
and/or financial assistance provided by one’s children during old age, both of which areconsistent with the life-cycle model of saving.
As a final example, Movshuk (2009) finds evidence of a double-humped age-saving
profile in Japan as well as in the other countries he studies, and although his results do not yield
information on the absolute level of the saving rate at each age, the sharp decline he finds atolder ages strongly suggests that saving rates become negative in old age.

5. Conclusion
In this paper, I surveyed the previous literature on the saving behavior of the aged inJapan and then presented some survey data on the saving behavior of the aged in Japan that
became available recently.

To summarize the main findings of this paper, virtually all previous

studies as well as the newly available data I analyze have found that the retired aged dissave andthat even the working aged dissave, at least at advanced ages.

Moreover, there has been a

sharp increase in the dissaving of the retired aged since 2000, with the increase being due
primarily to reductions in social security benefits, increases in consumption expenditures, andincreases in taxes and social insurance premiums.

These findings are consistent with the life-

cycle model and suggest that this model is highly applicable (and becoming increasingly
applicable over time) in the case of Japan.
Thus, there does not appear to be any evidence of the discrepancy between the macroevidence and the micro evidence found by Weil (1994) in the case of Japan, with both types ofevidence suggesting that the life-cycle model is highly applicable in the case of Japan.

15Moreover, most studies of dissaving behavior of the aged for countries other than Japan do nottake account of employment status, and if they did, I believe that they would also find moreevidence of dissaving, at least by the retired aged, and hence no discrepancy between the macroevidence and the micro evidence.
I turn next to directions for further research.

Few studies have examined the saving

behavior of the dependent aged (the aged who live with their children) in Japan (the only onesof which I am aware are Hayashi, Ando, and Ferris (1988) and Ishikawa (1988)), and moreover,none of these studies have looked at the saving behavior of the retired dependent aged.

Since

the proportion of the aged who live with their children is still high (about one-half) in Japan andsince a crucial implication of the life-cycle model is that the retired aged dissave, it is importantto analyze the saving behavior of the retired dependent aged and to examine whether they
dissave, as predicted by the life-cycle model.
I turn finally to the policy implications of my findings.

Japan’s population is aging at

the fastest rate in human history, and Japan will soon have the most aged population in theworld.

My finding that the (retired) aged dissave in Japan and that their dissaving rate has

been increasing over time (in absolute magnitude) implies that this rapid population aging willcause a sharp decline in Japan’s household saving rate.

Since Japan’s household saving rate

had already fallen to about 3 percent by 2007, according to national accounts data, a further
decline implies that Japan’s household saving rate, which was formerly one of the highest in theworld, will soon become zero or negative, which has important ramifications for global
imbalances.

16

References
Dekle, Robert (1990), "Do the Japanese Elderly Reduce Their Total Wealth? A New Look With
Different Data," Journal of the Japanese and International Economies, vol. 4, no. 3(September), pp. 309-317.
Hayashi, Fumio (1986), “Why Is Japan’s Saving Rate So Apparently High?” NBER
Macroeconomics Annual 1986, vol. 1, pp. 147-210.
______________ (1997), Understanding Saving: Evidence from the United States and Japan(Cambridge, Massachusetts: MIT Press).
_______________; Ando, Albert; and Ferris, Richard (1988), “Life Cycle and Bequest Savings:
A Study of Japanese and U.S. Households Based on Data from the 1984 NSFIE and the 1983
Survey of Consumer Finances,” Journal of the Japanese and International Economies, vol. 2,
no. 4 (December), pp. 450-491.
Horioka, Charles Yuji (1984), “The Applicability of the Life-Cycle Hypothesis of Saving toJapan,” Kyoto University Economic Review, vol. 54, no. 2 (October), pp. 31-56.
___________________ (1989), “Why Is Japan's Private Saving Rate So High?” in Ryuzo Satoand Takashi Negishi, eds., Developments in Japanese Economics (Tokyo: Academic
Press/Harcourt Brace Jovanovich, Publishers), pp. 145-178.
___________________ (1993), “Saving in Japan,” in Arnold Heertje, ed., World Savings: An
International Survey (Oxford, UK, and Cambridge, USA: Blackwell Publishers), pp. 238-278.
___________________ (1997), “A Cointegration Analysis of the Impact of the Age Structure of
the Population on the Household Saving Rate in Japan,” Review of Economics and Statistics, vol.
79, no. 3 (August), pp. 511-516.
___________________ (2001), “Japan’s Public Pension System in the Twenty-first Century,” in
Magnus Blomstrom, Byron Gangnes, and Sumner LaCroix, eds., Japan’s New Economy:
Continuity and Change in the Twenty-first Century (New York: Oxford University Press), pp.
99-119.
___________________ (2002), “Are the Japanese Selfish, Altruistic, or Dynastic?” Japanese17Economic Review, vol. 53, no. 1 (March), pp. 26-54 (the 2001 JEA-Nakahara Prize Lecture).
___________________; Fujisaki, Hideki; Watanabe, Wako; and Kouno, Takatsugu (2000), “AreAmericans More Altruistic than the Japanese?

A U.S.-Japan Comparison of Saving andBequest Motives,” International Economic Journal, vol. 14, no. 1 (Spring), pp. 1-31.
___________________, and Kan, Mari (2009), “Chochiku/Shisan (Saving/Wealth),” inYasuyoshi Oouchi and Hiroko Akiyama, eds., Shin Rounen-gaku (New Gerontology), 3rd edition(Tokyo: University of Tokyo Press), forthcoming.
___________________; Kasuga, Norihiro; Yamazaki, Katsuyo; and Watanabe, Wako (1996),“Do the Aged Dissave in Japan? Evidence from Micro Data,” Journal of the Japanese andInternational Economies, vol.10, no. 3 (September), pp. 295-311.
___________________ and Okui, Megumi (1999), “A U.S.-Japan Comparison of theImportance and Determinants of Retirement Saving,” Economics Letters, vol. 65, no. 3(December), pp. 365-371.
___________________; Suzuki, Wataru; and Hatta, Tatsuo (2007), “Aging, Saving and Public
Pensions,” Asian Economic Policy Review, vol. 2, no. 2, pp. 303-319.
___________________ and Watanabe, Wako (1997), “Why Do People Save?

A

Micro-Analysis of Motives for Household Saving in Japan,” Economic Journal, vol. 107, no.
442 (May), pp. 537-552.
___________________; Yamashita, Koji; Nishikawa, Masashi; and Iwamoto, Shiho (2002),“On the Importance, Nature, and Impact of Bequests in Japan,” mimeo., Institute of Social andEconomic Research, Osaka University.
___________________, and Yin, Ting (2009), “The Impact of the Age Structure of the
Population on the Household Saving Rate in Japan,” mimeo., Institute of Social and Economic
Research, Osaka University, Ibaraki, Osaka, Japan.
Ishikawa, Tsuneo (1988), “Saving and Labor Supply Behavior of Aged Households in Japan,”
Journal of the Japanese and International Economies, vol. 2, no. 4 (December), pp. 417-449.

18

Movshuk, Oleksandr (2009), “Household Savings through Life Stages: Evidence from MicroData,” mimeo., Faculty of Economics, Toyama University, Toyama, Japan.
Statistics Bureau, Ministry of Internal Affairs and Communications, Government of Japan(2009), Japan Statistical Handbook, 2009 edition (Tokyo: Japan Statistical Association) andearlier editions of the same.
Weil, David N. (1994), “The Saving of the Elderly in Micro and Macro Data,” Quarterly
Journal of Economics, vol. 109, no. 1 (February), pp. 55-81.

19

Table 1: Saving Rates by the Age Group of the Household Head, 1990-2008
Calendar
29 years oryear
All agesyounger
30-39 years 40-49 years 50-59 years 60 or older
1990
24.7
24.0
27.1
24.0
25.1
19.0
1991
25.5
25.8
27.2
25.1
25.9
21.0
1992
25.5
26.0
28.3
25.2
24.7
20.7
1993
25.7
25.3
29.0
24.9
24.9
22.6
1994
26.6
27.6
28.5
25.2
28.2
20.5
1995
27.5
28.0
31.3
25.4
28.3
22.6
1996
28.0
28.1
31.4
27.1
28.4
21.8
1997
28.0
30.4
31.3
26.9
28.3
22.4
1998
28.7
29.5
32.8
28.0
28.7
22.5
1999
28.5
28.8
32.7
28.5
27.3
21.0
2000
27.9
25.9
32.3
29.1
26.8
17.9
2001
27.9
24.0
33.8
27.5
27.0
18.4
2002
27.0
26.1
33.3
27.8
25.5
13.7
2003
25.9
28.4
32.3
27.0
24.1
12.1
2004
25.7
24.6
31.4
27.9
23.5
9.4
2005
25.3
26.9
29.7
28.3
25.3
8.6
2006
27.5
22.7
32.6
29.8
27.8
7.8
2007
26.9
26.3
32.5
30.1
25.5
10.8
2008
26.6
23.9
30.8
30.3
26.5
8.2
Notes: The figures show the saving rates ("ratios of surplus") of salaried worker households with
two or more members.
Source: Statistics Bureau, Ministry of Internal Affairs and Communications, Government ofJapan, ed., Annual Report on the Family Income and Expenditure Survey (Income andExpenditure) (Tokyo： Japan Statistical Association), various editions.

20

Table 2: Saving Rates of the Retired Aged in Japan, 1995-2008
Households with aHouseholds with a retired household
Calendar retired head aged head aged 65 years
or olderyear
60 years or older
1995
-11.5
na
1996
-10.8
na
1997
-9.9
na
1998
-11.3
na
1999
-14.6
na
2000
-16.2
-8.8
2001
-20.4
-13.3
2002
-26.0
-17.5
2003
-24.6
-16.8
2004
-29.2
-23.2
2005
-27.4
-20.7
2006
-26.8
-21.2
2007
-28.8
-24.9
2008
-31.3
-25.5

Retired aged couples
with a husband aged 65 Retired aged couples Retired one-person
or older and a wife with both spouses aged households aged 65
Retired aged
or olderaged 60 or older
65 or older
households
na
-9.2
-9.3
na
na
-6.0
-5.8
na
na
-6.3
-5.1
na
na
-6.1
-5.4
na
na
-7.4
-6.0
na
na
-5.2
-4.0
-0.5
na
-14.5
-14.3
-8.3
na
-19.6
-18.3
-13.4
na
-16.4
-15.7
-8.9
na
-22.0
-21.4
-15.2
-28.0
-21.0
-17.4
-12.9
-20.0
-21.8
-23.0
-18.7
-25.0
-24.2
-17.7
-26.1
-24.4
-25.5
-20.5
-22.4

Notes: The figures show saving rates ("ratios of surplus"). The first two columns include only households with two or more persons until 2004,
and all households from 2005 onwards. Until 2004, "retired aged households" denote households with two or more persons in which all males
are 65 years or older, all females are 60 years or older, and there is at least one member who is 65 years or older. From 2005 onwards, "retired
aged households" denotes retired one-person households aged 65 or older and retired households with two or more persons in which all males are
65 or older, all females are 60 years or older, and there is at least one member who is 65 or older.
Source: Statistics Bureau, Ministry of Internal Affairs and Communications, Government of Japan, ed., Annual Report on the Family Income
and Expenditure Survey (Income and Expenditure) (Tokyo： Japan Statistical Association), various editions.

21

Table 3: Decomposition of the Decline in Household Saving of Retired Aged Couples, 2000-08
2008 (2000
Percentage Contribution of
2000
2008
prices)Real changechangeeach factor
Retired aged couples with a husband aged 65 or older and a wife aged 60 or older
Income244,293
226,043
227,154-17,139-7.02
42.16
Social security benefits
228,619
209,282
210,311-18,308-8.01
45.04
Other forms of income
15,674
16,761
16,843
1,169
7.46
-2.88
Consumption expenditures
232,697242,773
243,967
11,2704.84
27.72
Medical care
12,706
15,43215,153
2,447
19.26
6.02
Non-living expenditures
20,57632,65732,81812,242
59.49
30.11
Direct taxes
10,22015,223
15,298
5,078
49.69
12.49
Social insurance premiums
10,326
17,406
17,492
7,166
69.39
17.63
Other non-consumption expenditures
29
28
28
-1
-2.97
0.00
Surplus (saving)-8,979-49,388-49,631-40,652-452.74
100.00Retired aged couples with both spouses aged 65 or older
Income245,615
228,767
229,892-15,723-6.40
39.82
Social security benefits
231,782
213,848
214,899-16,883-7.28
42.75
Other forms of income
13,833
14,91914,992
1,159
8.38
-2.94
Consumption expenditures
226,651
237,369
238,536
11,8855.24
30.10
Medical care
12,661
15,86015,573
2912
23.00
7.37
Non-living expenditures
20,01431,73931,895
11,881
59.36
30.09
Direct taxes
10,007
14,517
14,588
4,581
45.78
11.60
Social insurance premiums
9,972
17,20017,285
7,313
73.33
18.52
Other non-consumption expenditures
35
22
22
-13
-36.83-0.03
Surplus (saving)-1,050-40,340-40,538-39,488-3,760.79
100.00Component

Notes: The figures for 2008 were converted to 2000 prices by dividing the figures for 2008 by the ratio of the 2008 Consumer Price Index(CPI) to the 2000 CPI. The overall CPI was used in all cases except in the case of medical care expenditures, in which case the CPI for
medical care expenditures was used.
Source: Statistics Bureau, Ministry of Internal Affairs and Communications, Government of Japan, ed., Annual Report on the Family Income
and Expenditure Survey (Income and Expenditure) (Tokyo： Japan Statistical Association), various editions.

22

Table 4: Rates of Decumulation of Retired Aged Couples, 2003-08
Beginning of year
Flow of financial
Rate of
Impliedfinancial net worth saving per monthdecumulation
Time horizon(10,000 yen)(yen)
(percent per year)(years)Retired aged couples with a husband aged 65 or older and a wife aged 60 or older
2003
2,331.0-38,024
1.96
51.09
2004
2,345.0-46,765
2.39
41.79
2005
2,428.5-39,307
1.94
51.49
2006
2,442.5-47,602
2.34
42.76
2007
2,376.0-46,575
2.35
42.51
2008
2,354.0-38,024
1.94
51.59
Retired aged couples with both spouses aged 65 or older
2003
2,351.0-19,825
1.01
98.82
2004
2,317.0-31,867
1.65
60.59
2005
2,384.5-30,824
1.52
65.66
2006
2,439.0-40,297
1.98
50.51
2007
2,360.5-33,769
1.71
58.63
2008
2346.0-19,825
1.01
98.61

Calendaryear

Notes: The flow of financial saving is defined as net purchases of financial assets minus the netincrease in liabilities, financial net worth as beginning-of-year holdings of financial assets net of
liabilities, and the rate of financial decumulation as the negative of the ratio of financial saving tobeginning-of-year financial net worth, and the implied time horizon as the reciprocal of the rate offinancial decumulation.
Holdings of financial assets and liabilities are available for the year as a whole only, so I estimatedbeginning-of-year financial net worth by taking the average of the annual averages for the previous
and current calendar years.

Sources: Statistics Bureau, Ministry of Internal Affairs and Communications, Annual Report on the
Family Income and Expenditure Survey (Income and Expenditure and Savings and Liabilities) ,various issues (Tokyo, Japan: Japan Statistical Association).

23

Endnotes
1

Hayashi, et al. (1988) also use another method in which they examine how the stock (flow) ofsaving of extended families in which the younger generation is of a certain age changes as theage of the older generation increases, but the results based on this method are not discussed here
due to space limitations.

2

The saving rate of unemployed households is a good proxy for the saving rate of retired aged

households because the vast majority of unemployed households (92 to 95 percent) are retired
aged households (defined as households with a retired head aged 60 or older), and the savingrate of unemployed households fluctuated in the -10 to -25 percent range during the 1989-1994
period.

Thus, it appears that the retired aged have been dissaving considerable portions of

their incomes since at least 1989.

3

I am grateful to Oleksandr Movshuk for this point.

The fact that the household saving rate was about 3 percent in 2007 according to the National

Accounts but about 27 percent in the same year according to the Family Income andExpenditure Survey suggests how large the upward bias in the saving rate data from the Family
Income and Expenditure Survey is.

4

I am grateful to Kenichi Ueda for this point.

24