Population ageing impacts EU portfolio choices, Italian risk exposure
A Banca d'Italia Occasional Paper investigates population ageing's impact on household portfolio choices in Italy, France, Germany, and Spain. The study finds that while risky asset propensity follows an inverted U-shape, Italy's lower participation is structural, yet overall risk exposure is similar when business wealth is included.
Business wealth reshapes risk view
The paper, drawing on HFCS data from 2010 to 2020, reveals that the propensity to hold risky assets follows an inverted U-shaped pattern over the life cycle.
While Italy shows a comparatively lower participation in risky assets, this difference is attributed to structural rather than demographic factors.
Crucially, when business wealth is incorporated into the definition of risky assets, cross-country disparities are substantially reduced.
This suggests Italian households are not less exposed to risk per se, but instead hold it through alternative asset compositions, particularly those associated with entrepreneurial activities.
The empirical strategy combined descriptive analysis, econometric estimation, and a counterfactual decomposition exercise, identifying age as a significant factor in portfolio choices.
Overall, the evidence indicates that population ageing tends to reduce the holding of risky assets, while cross-country differences primarily reflect heterogeneity in wealth composition, necessitating a joint account of financial and entrepreneurial components for risk-bearing capital assessments.
The life-cycle and Italian exceptionalism
Population ageing represents a major structural transformation in advanced economies, with Italy facing a projected decline in its working-age to dependent ratio from 3:2 in 2023 to roughly 1:1 by 2050.
A long-established fact is that Italian households participate substantially less in volatile financial markets, such as equities, compared to their counterparts in other major economies.
This phenomenon has been debated, with potential explanations ranging from demographic factors, where an older population might exhibit lower risky asset propensity, to structural determinants like financial market development or household preferences.
Theoretically, the life-cycle hypothesis posits an inverted U-shaped age profile for risky asset participation, as investment horizons shorten and risk aversion increases with age.
However, institutional and cultural factors can influence these effects, leading to mixed empirical evidence across countries.
A nuanced view of household risk
This research provides a crucial re-evaluation of household risk exposure, particularly for Italy, by highlighting the often-overlooked role of business wealth.
It challenges simplistic assumptions about national risk aversion and underscores the necessity for policymakers to consider a broader definition of wealth in financial stability assessments.
The findings suggest that focusing solely on traditional financial instruments can lead to misleading conclusions about household resilience and risk-bearing capacity.