Life Cycle Mortgage Payment and Forced Saving

Abstract

A common puzzling phenomenon over the household survey of Taiwan is\r\nthat the renters` saving rate is higher than that of the owners`, while the latter\r\nhas a higher average income than the former. One reason for this feature is\r\nthat certain housing owners have to pay a greater amount of mortgage\r\npayment that is not included in saving. And on the other hand, the saving\r\ndecision is correlated with the tenure decision, while the tenure decision is\r\nalso correlated with the household`s life cycle, in addition to income. And\r\ntherefore, when one tries to estimate the correct saving rate, he or she has\r\nto consider the household`s life cycle as well.\r\nIn this study, we apply a data set of the household survey of Taiwan to\r\ninvestigate the correlation of life cycle, mortgage payment, and forced\r\nsavings. First of all, we estimate the saving rate in a traditional way, and\r\nthen estimate the saving rate after the adjustment of mortgage payment. To\r\nfigure out the correct saving rate with the tenure decision, we evaluate\r\ndifferent households` saving behaviors according to different cohorts, and\r\nconsequently, we could check how life cycle plays its role in this model. And\r\nour finding is, that for every cohort, the forced savings is significant for\r\nowners with mortgage and for renters as well.