Does this year's loss change next year's budget?
A household facing a temporary loss can ask whether its current savings will bridge the gap until income recovers. A lasting loss also reduces expected income in future years. The same observed drop today can therefore lead to different decisions about when to cut spending and how much to set aside.
A measure of overall income variation cannot tell us how much comes from temporary shocks and how much reflects changes that persist. The scale of variation and the duration of its effects are separate inputs into household decisions.
Compare seven structures at the same scale of variation
The exercise anchors seven income processes to a common measure of residual income variation from published Japanese statistics. The processes differ in persistence, the mix of transitory and persistent risk, and the distribution of shocks. Households in the model choose consumption, saving, stock-market participation, and asset allocation from age 25 through retirement.
The model includes costs of entering and holding assets in the stock market. Saving enough to make entry worthwhile is a different decision from how much to allocate to stocks after entering. A household can build more assets and still prefer a conservative allocation.
Read the asset differences in light of the model assumptions
In three scenarios that vary persistence while holding financial conditions fixed, mean financial assets at age 40 range from ¥7.16 million to ¥15.09 million. Matching the scale of income variation did not produce a common path for asset accumulation. The effects can also differ by age and by whether we look at saving, participation, or allocation among participants.
Those figures are conditional comparisons within the model. They are not direct estimates of Japanese households' income processes or preferences. The exercise shows why matching a single measure of income variation is insufficient to pin down how households prepare for risk.