80pc of Pakistanis’ wealth comprises residential buildings: WB
According to a new World Bank study, Pakistani households accumulate major net worth though overwhelmingly in the form of residential buildings, and on average almost 80 percent of the wealth collected by age 60 to 65 is composed of residential buildings.
The average Pakistani household’s total worth increases by 5 years’ worth of consumption between the ages 25 and 65. The bulk of this raise is in the form of residential housing, while other forms of wealth like durables, land, business and farm values, and financial assets decline over the life cycle. The accumulation of assets is slower early in the life cycle and gains speed between ages 40 and 65.
The collective forces of population aging, dwindling family and village risk-sharing networks, and less formal pension coverage will cause financing elderly consumption a major task for the future, as per the study named “Life Cycle Savings in a High-Informality Setting — Evidence from Pakistan”, issued earlier this week.
The reality that households mainly save on real estate and land signals that this is believed a safe investment compared to other available options. Housing is the way to store resources for the long run in a manner that cannot easily be stolen or taken by other family members, the study observes.
Moreover, the findings further state that it could also reveal a shortage of access to other safe, high-return, and reliable long-term saving instruments.
Pakistan has been slower as compared to other neighbouring countries in growing financial inclusion and the hurdles to this must be addressed, the study highlighted.
Meanwhile, the key source of emergency funds tends to be family or friends, as per 41percent of the population aged 15 years and above; while 25percent report borrowing for medical expenditures. As per the findings, “We find that average net worth accumulation accelerates midway through the working years, roughly around age forty. While some of this accumulation may reflect patterns in inheritances, we show that active saving likely plays a significant part: household income growth starts to outpace household consumption growth around that time, and the saving rate increases by 20 percentage points between ages 40 and 65.”