Life Cycle Saving in a High-Informality Setting

Clement Joubert () and Priyanka Kanth ()
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Clement Joubert: World Bank
Priyanka Kanth: World Bank

No 17876, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Low- and middle-income countries are experiencing fast population aging and reductions in extreme poverty, increasing theoretical incentives to save for old age, but empirical evidence on household wealth accumulation over the life cycle is lacking. Using age-cohort-time decompositions on 18 years of micro-data from Pakistan, we show that the average household accumulates wealth equivalent to 5 years’ worth of consumption between the ages of 25 and 65. Furthermore, this is mostly in the form of illiquid residential housing and land in rural areas. Examination of housing acquisitions, renovations, and dwelling characteristics over the life cycle reveals that wealth accumulation in 2001-2018 resulted partly from active investment in housing and partly from capital gains. To the extent that keeping all wealth in the form of housing may be sub-optimal, this constrained ability to save for the long term could motivate the extension of contributory pension instruments to informal sector workers, the majority of the workforce in this setting.

Keywords: social protection; savings; informality; aging (search for similar items in EconPapers)
JEL-codes: D14 D15 J11 J26 J46 (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-age, nep-dev, nep-iue and nep-lma
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