Albanian families tend to save, only 17% of additional income leads to consumption

Albanian families tend to save, only 17% of additional income leads to consumption

 About 20 percent of any added income of Albanian households goes for consumption. An expert study by Elona Dushku, Ola Çami at the Bank of Albania on the response of Albanian household consumption to income changes shows a positive relationship between income growth, house value and consumption.

Analyzing the Household Budget Survey data for several consecutive years, Bank experts proved that in every 1 lek of income growth, Albanian households increase their consumption by 0.17 lek, while for every 1 lek more of house value, their increase the consumption by 0.01 lek. So about 17 percent of the additional income goes into consumption, while every 1 lek added to the house value, of 0.1 percent goes for consumption growth.

These estimates of total income indicate that Albanian households do not change or adjust their level of consumption to income changes.

Bank of Albania (BoA) experts argue that one of the reasons is that households, being unsafe in their level of income, prefer to save more money than to consume.

This is also because the level of Albanian household income is relatively low, and there is a high level of heterogeneity among households.

On the other hand, the low value of consumption on the change of house value shows that not every consumers can change, increase or decrease consumption in response to changes in house value.

In the BoA's judgment, this is because most of the homeowners expect to stay in their actual home for a long time, and this makes them indifferent to home price or  lease price changes.

The results have shown that older individuals react more to wealth shocks, as they have a shorter period of time to spend or consume the accumulated new wealth.

The results show that younger households have higher consumption of income related to the value of their home.

Using the individual data of 17,000 households from the Living Long Life Survey

In 4 surveys at different periods, the BoA expert study estimates that the marginal inclination for revenue-consuming fluctuates in the range of 0.14-0.17%, while the real property fluctuates in the range of 0.01-0.06%.

The results fluctuate depending on the age of the head of household and family characteristics. Thus, estimates show that in households where the head of household is 35-65 years old, households are less vulnerable to income variation, compared to households where the head of household is young (below 35). While for families where the head of the household is over the age of 65, there is a greater reaction to real estate changes compared to other groups. Estimates are in line with what the life cycle model suggests for consumer behavior.
Albanian families tend to save, only 17% of additional income leads to consumption Albanian families tend to save, only 17% of additional income leads to consumption Friday, October 19, 2018 Rating: 5
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