Over the past twenty years, Dutch households' balance sheets have expanded considerably. Notably house and pension assets have substantially increased on the assets side, while mortgage debt rose on the liabilities side. The balance of all possessions and debts shows that the situation of Dutch households as a whole has improved. Total 'net assets' of Dutch households have increased from just over 200% of gross domestic product (GDP) in 1981 to more than 400% of GDP in 2011 (see Figure 1).
Assets of the young and old
|Date||25 October 2012|
Over the past twenty years, Dutch households' assets have increased substantially. Still, the current generation of young households is more vulnerable to financial head wind.
However, net assets of Dutch households are not evenly distributed. The differences in assets and liabilities are most notable between the young and old, and reflect the usual pattern of income and savings over the course of life. Many young households take out maximum mortgage loans to buy a house, whereas older citizens have had time to build up savings and reduce their mortgage debt.
Figure 2 illustrates the asset differences between the various age categories. For each category, it presents the balance sheet of an average Dutch household in relation to the household's income, both in 1993 and in 2011. The data on indebtedness, private homes, financial and other assets are based on information from Statistics Netherlands (CBS). The data on pension assets are based on information from DNB. It is important to stress that there is a fundamental difference between pension assets and other asset components. The pension assets refer to collective pension entitlements, which can only be attributed to individual households using several assumptions. Consequently, the distribution of pension assets across the various age categories represents a rough estimate.
Figure 2 shows that on average, younger households have higher mortgage debts than older households. In the course of people's working lives, their net asset position improves. Older households have larger accumulated pension assets, lower mortgage debts and more other financial assets, such as savings, shares and bonds. After their working lives, older households gradually use up their accumulated assets to provide a living for themselves.
Whereas since 1993 net assets of older households have grown strongly compared to income, net assets of younger households appear to have decreased. If pension assets are ignored, the financial buffers of younger people have declined even more sharply. On average, younger households have become more vulnerable to financial headwind (Note 1).
The larger financial vulnerability of younger households relates to Dutch house price developments. At the end of the 1990s, house prices increased sharply, but since 2008 they have been dropping. Many households that bought their first home in the past decade have experienced part of the price fall, but not the explosive rise that preceded it. These were mainly younger households. On the whole, older households entered the housing market at a more favourable moment in time.
Note 1: Incidentally, vulnerability of some households may be larger than the average picture shown in Figure 2.