saving rate as a share of current income and funds flow, some argue that a more relevant measure of saving adequacy is not the portion of current income set aside for saving but rather the change in net worth. and in this regard, the picture of household saving looks more favorable than suggested by the saving rate. the ratio of net worth - to - disposable income has come down from its peak in 2000, but remains at a high level relative to the past few decades, because capital appreciation on household assets, such as equities and real estate, has considerably outpaced income gains. this is a passive perspective on savings, though, where households rely on the markets to raise the value of their assets over time. but, to create these assets, households need to consistently set aside some of their current earnings to invest for their future needs. while the experience of the past few years of exceptionally low interest rates and lower expected stock returns encouraged a rational consumer to spend and not save, as the markets return to more long - term trends, we should see consumers moderate their behavior as well. office of federal housing enterprise oversight house price index. managing personal finances i now want to turn from an aggregate view of household finances to savings and credit at the individual level. in particular, i want to discuss issues relating to managing personal finances, including managing personal credit and saving for retirement, and the special importance of financial education. college graduates preparing to enter the labor force will soon assume a new level of responsibility for managing their finances. personal financial management includes the strategic use of both credit and savings to enhance asset accumulation and financial well being. just as the choices that students have made regarding their education play a vital role in determining career opportunities, the decisions they make and behaviors they establish regarding financial management in the coming years will also impact future opportunities and their ability to capitalize on them. compared to a generation ago, the financial marketplace of today is significantly more complex. there is now an extensive range of consumer financial products and services, and providers of these goods and services. advances in communications technologies and other technological tools have dramatically broadened the provision of financial services. for example, the development of sophisticated credit - scoring models permits lenders to more efficiently evaluate credit risk and underwrite loans and thus provide a broader array of loans to more closely meet the specific financial needs of different consumers. in addition, as workers have become more mobile and more likely to change jobs several times over the course of their

circumstances. one tool for managing risk is securitization. many of the assets on a firm's balance sheet, such as receivables and customer leases, can now be securitized - - that is, grouped into pools and sold to outside investors. securitization helps a firm manage the risk of a concentrated exposure by transferring some of that exposure outside the firm. by pooling a diverse set of assets and issuing marketable securities, firms obtain liquidity and reduce funding costs. of course, moving assets off the balance sheet and into special - purpose entities, with the attendant creation of servicing rights and high - risk residual interests retained by firms, generates its own risks. derivatives are another important tool for managing risk exposures. in the ordinary course of business, firms are exposed to credit risk and the risk of price fluctuations in currency, commodity, energy, and interest rate markets. for example, when an airline sells tickets months before a flight, it becomes exposed to fluctuations in the price of jet fuel. a higher price of jet fuel translates directly into lower profits and, perhaps, a greater risk of bankruptcy. firms can now use derivatives - - options, futures, forwards, and so on - - to mitigate their exposure to some of these risks. the risk can be transferred to a counterparty that is more willing to bear it. in my example, the airline could buy a forward contract or a call option on jet fuel to hedge its risk and thereby increase its financial stability. another major category of risk is credit risk, which also has become much more quantified. models analyze a corporate customer's or borrower's probability of default, the loss in the case of default, and the borrower's likely exposure at the time of default, taking into consideration future draw - downs. the greater use of credit models in retail transactions provides a stronger framework to assess risk and ensure that pricing reflects credit quality. for consumer credit, however, models are less proven, since data collection and loss estimates generally evolved after the 1990 - 91 recession and so have not been proven under stress conditions or for subprime borrowers. because many of these borrowers did not have significant access to credit in previous recessions, their ultimate default rate in the current cycle should help to validate the strength of the new statistical models. for example, the health of financial institutions today reflects the improvement in the risk management process that has been ongoing at banks for many years.