Households saving more, Reserve Bank data shows

House prices have crept up just 0.5 per cent this year, according to the Real Estate Institute figures. Photo / Janna Dixon

Households strengthened their balance sheets last year amid the fallout of the financial crisis, increasing savings and shunning debt.

Reserve Bank figures released this week show households lifted their financial assets (which do not include housing) by $17.6 billion or 9 per cent last year, the largest dollar increase for at least 11 years.

That more than reversed the $4.5 billion contraction in financial assets in 2008 as financial markets reeled from the fallout of the sub-prime crisis.

Households also increased their debt last year by $4.3 billion, but that was the smallest increase for at least 11 years.

Meanwhile, recovery in the property market saw the value of housing assets rise $35 billion, reversing most of the $46 billion or 7.5 per cent decline of 2008.

The Reserve Bank data show households holding 60 per cent of their $212 billion of financial wealth in bank deposits and fixed interest securities, while 30 per cent is entrusted to superannuation schemes and managed funds and 10 per cent to direct holdings of New Zealand or international shares.

While the recovery in financial markets undoubtedly boosted financial assets, $6 billion or more than a third of the increase from 2008 consisted of higher holdings of bank deposits and bonds.

The woes of the finance company sector is evident in the numbers, with $6.8 billion in their hands at the end of last year, down from $7.3 billion a year earlier and $8.5 billion at the peak in 2006.

At the end of 2009 debt funded 23.4 per cent of households' assets of $815 billion - three-quarters of which was in the form of housing. A year earlier assets were $52 billion lower at $763 billion, but debt just $5 billion lower and the gearing higher at 24.3 per cent.

Partial data for this year show household debt continuing to grow at the same sluggish pace which prevailed last year, while house prices - as reflected in the Real Estate Institute's stratified index - have inched up just 0.5 per cent.

But the figures also show that while household debt may be moderate relative to assets it remains high relative to incomes.

Household debt at the end of last year was equivalent to 156 per cent of disposable (or after tax) incomes, compared with 104 per cent 10 years ago and just 57 per cent 20 years ago. It has been over 1.5 times income for the past four years.

Encouraging people to spend less and save more of their incomes is likely to be one of the reasons put up by the Government in next Thursday's Budget for a shift in the tax burden from income tax to GST.

The Reserve Bank in its March monetary policy statement forecast an improvement in the household savings rate over the next three years.

But it noted that "households remain highly indebted and debt service costs will increase as interest rates begin to rise".

The financial markets expect the bank to begin raising the official cash rate on June 10 and for the OCR to be 2 percentage points higher this time next year.