# **1. Introduction**

In countries where formal pension schemes have wide coverage and guarantee high replacement ratios, individuals can rely on these programs to transfer consumption safely from their productive years to their retirement years. However, 61.2 percent of employed individuals around the world worked informally in 2019, without contributing to long-term saving schemes (Bonnet et al. 2019). They must therefore either save on their own while their income is high, as predicted by the life cycle hypothesis (Modgliani and Brumberg ,1954, 1979), or rely on transfers to consume in old age.

The consensus in the development literature has long been that life cycle saving is limited in developing countries, but this question should be reexamined considering major economic and demographic trends observed in recent decades. It is often assumed that individuals in developing countries work into old age and rely on children to support them in their unproductive years, reducing the needs for asset accumulation. However, three major socioeconomic trends could have strengthened longer-term saving in developing countries since that diagnostic was established. First, life expectancy (and thus the number of unproductive years to be covered) has increased significantly throughout the developing world. In Pakistan, the context of this study, it went from 60 years in 1990 to 67 in 2018 (World Bank, World Development Indicators 2018). Second, high fertility rates meant that the elderly could expect to rely on large cohorts of active individuals within their family and village networks for support in old age. While still relatively high compared to peer countries, the fertility rate in Pakistan has almost halved over the last thirty years, from 6.2 births per woman in 1990 to 3.5 in 2018, a trend that is common to many developing countries. Third, income growth is also correlated with higher saving rates (Loayza et a. 2000). Large increases in GDP per capita (USD371.7 in 1990 vs. USD1,284.7 in 2019 in Pakistan) could have also broadened the segments of the population that can afford to delay some consumption into the future.

To what extent these demographic and economic characteristics have impacted household asset accumulation over the life cycle remains an empirical question. Households may have more incentives to save but lack the saving technology (financial inclusion) or ability (commitment, need for liquidity) to safely put money aside for decades. Using Findex survey data, Demigurc-Kunt et al. (2016) report that in South Asia only 10-15 percent of individuals save for old age in their 50s. However, a larger fraction (32 percent in Pakistan) report saving more generally, and those savings may ultimately finance old age consumption, even if that is not the most urgent intended use. In addition, some components of household net worth such as housing may not be identified as savings by respondents, despite being indirectly consumed in old age in the form of saved rent payments and, while relatively illiquid, could be sold as a last resort.

This paper estimates patterns in household wealth accumulation over the life cycle in a lower-middle-income, high-informality context, using data from Pakistan, where 88.5 percent of employment was informal in 2017 (Bossavie et al, forthcoming). To identify the effect of age on household wealth, we apply the age-year-cohort decomposition techniques described in Deaton (1997) to the different components of household wealth, as well as household consumption and income, distinguishing households in rural versus urban areas and in different parts of the household consumption distribution.

2