But all this is already available. It can, of course, be said that if only everyone becomes better at obtaining knowledge, information and critical assessments, it is possible that more households than at present can actually come closer than before to the stock market’s return. Unwarranted euphoria can be avoided and share prices can be more stable. At the same time it can be said that the problems go deeper than that and have to do with how the financial system functions today. It is certainly true that in recent decades, financial deregulations, new financial products, improved data and telecommunications and the development of financial theory have led to an outstanding and rather fantastic growth and transformation of the financial system in many parts of the world. Even so, to a growing extent households face what are sometimes very difficult risk-management decisions that were not called for or even possible earlier. Many people still lack the requisite knowledge for this and it may be asked whether people in general can be expected to have such knowledge in the future. Everyone cannot be a specialist in risk management and financial theory. As I have indicated, one reason why households face a more difficult situation than before is, of course, the substantially greater exposure to the stock market that stems from disintermediation. But this tendency has been accentuated by the new pension system. It is now up to the individual to decide how a part of her/his pension capital is to be invested.
Today I shall confine my brief remarks to some aspects that have to do with the fact that shares now weigh considerably more heavily in household financial portfolios than was the case thirty years ago. As I just said, this development has coincided with a return on shares that has been very high historically. Sooner or later, however, there will be a normalisation, more or less in line with what has happened in the past. This is so because the return on shares is ultimately determined by corporate profits, which are bound up in turn with economic development in general. GDP represents the sum of all profits and wages in the economy and it is hard to see how an annual real growth rate of around 2 per cent could result in a development of corporate profits that warrants a real annual return on shares that averages around 20 per cent. A more “normal” combination of stock-market returns and risks makes saving in shares more troublesome than it has been with the good returns in the past twenty years. The financial system will need to do more than before to help households manage the risks associated with stock markets. The question is how this change is likely to occur. BIS Review 5/2002  1  Greatly increased household saving in shares One factor behind the growing interest in share investment in Sweden in the late 1970s may have been the low valuations initially.