What are Flow of Funds (FOF)?
Flow of funds (FOF) accounts are comprehensive macroeconomic financial accounts that record how money moves among sectors of an economy—who acquires which financial assets and who takes on which liabilities over a given period. They are compiled using double‑entry accounting so that every change in one sector’s balance sheet is matched by a change in another sector’s balance sheet (a source and a use). Central banks and statistical agencies publish FOF data to show where savings are coming from, where investment and borrowing are going, and how financial positions across sectors evolve over time.
Key takeaways
– FOF measure net inflows and outflows of financial assets and liabilities among sectors (households, non‑financial corporations, financial corporations, government, nonprofit organizations, farms, and the foreign sector).
– The U.S. FOF data are published by the Federal Reserve as part of the Z.1 “Financial Accounts of the United States” (quarterly—roughly 10 weeks after quarter end; historical series back to 1945 annually and to 1952 quarterly).
– FOF are different from “fund flows” (which usually describe money moving into and out of mutual funds or ETFs).
– FOF are used for macroeconomic analysis, credit and liquidity assessment, policy design, and as inputs for financial stability monitoring and investment research.
Understanding flow of funds accounts—what’s in them
– Sectors and subsectors: household and nonprofit, nonfinancial corporations, financial corporations (banks, insurance, pension funds, money market funds, mutual funds), government (federal, state and local), farms, and the foreign sector.
– Financial instruments covered: currency, deposits, Treasury and corporate bonds, equities, mutual fund shares, money market instruments, loans and mortgages, pension and insurance technical reserves, trade credits, and more.
– Account structure: for each sector the Z.1 shows outstanding levels (assets and liabilities) and the financial transactions (net acquisitions/uses) that changed those levels over the period. These transactions (flows) indicate whether a sector is net lending (surplus) or net borrowing (deficit) relative to the rest of the economy.
– Double‑entry logic: If households reduce deposits by $100 and buy $100 of corporate bonds, the household deposit asset falls and household holdings of corporate bonds rise; on the issuer side, the corporate bond liability rises by $100—each change has a counterparty entry.
Flow of funds data—what the U.S. Fed publishes
– Z.1 Financial Accounts of the United States: quarterly release showing levels and flows by sector and instrument, time series of outstanding debt, sectoral net worth, and sources/uses of funds.
– Historical tables: long series that allow comparisons back decades (annual series to 1945, quarterly back to 1952).
– Timing and revisions: published on a trailing basis (about 10 weeks after quarter end) and subject to periodic revisions as source data are updated.
– Uses by policymakers and analysts: design of monetary/fiscal policy, tracking financial stability risks (e.g., leverage build‑ups), and understanding cross‑sector finance linkages.
Practical steps—how to get, read, and use FOF (step‑by‑step)
1) Clarify your objective
– Are you studying household leverage, corporate financing trends, government financing needs, cross‑border capital flows, or systemic risk? Your purpose determines which sectors and instruments to focus on.
2) Access the data
– Go to the Federal Reserve’s Z.1 page and download the latest release and the historical data files (multiple formats, including Excel and CSV). (See Sources below.)
– Investopedia and other financial education sites provide summaries and explanations that can help interpret the tables.
3) Choose relevant tables and time horizons
– For sector flows: select tables that show financial transactions/net acquisitions for the sector(s) of interest. For outstanding positions: use the levels tables. Use quarterly series for short‑term dynamics and longer series to assess structural trends.
– Typical focus examples: household credit and mortgage balances; nonfinancial corporate debt and equity issuance; bank liabilities and assets; government debt issuance and holdings.
4) Compute and interpret net lending/borrowing
– Concept: net lending (or net saving) of a sector over a period equals net acquisition of financial assets minus net incurrence of liabilities. If positive → sector supplies funds to others; if negative → sector demands funds from others.
– Practical check: use the Z.1’s “sources and uses” or transaction (flow) tables directly rather than reconstructing from multiple lines where possible.
5) Visualize trends
– Plot levels (e.g., household debt to GDP) and flows (quarterly net borrowing/lending) to detect turning points, accelerations, or decelerations. Compare across sectors (e.g., household vs. nonfinancial corporations) and against real activity (GDP, investment).
– Look at ratios: debt/GDP, household debt/disposable income, corporate debt/earnings, financial assets-to-GDP, etc.
6) Identify signals and link them to economic outcomes
– Rising household credit and falling household net financial assets → potential consumer vulnerability and downside risk to consumption.
– Rapid growth of nonfinancial corporate borrowing → leverage risk for corporates, interest coverage concerns if rates rise.
– Large persistent government net borrowing → fiscal deficits financed by domestic or foreign savings; possible implications for interest rates or exchange rates.
– Large foreign sector net lending to the country → capital account inflows that can fund domestic investment but may create external vulnerabilities.
7) Cross‑check with other data sources
– Combine FOF with balance‑of‑payments, national income accounts (GDP), bank supervisory data, and market data (bond issuance, equity issuance) for a fuller picture. Use high‑frequency indicators where available if you need timelier signals.
8) Account for valuation and other adjustments
– Recognize that FOF show transactions and outstanding positions but market valuation changes (price effects) can alter sector net worth without current‑period transactions. The Z.1 provides some valuation adjustments—use them when analyzing wealth changes.
9) Watch for revisions and lags
– FOF are comprehensive but released with a lag and are revised as more source data become available. Avoid overreacting to a single quarter’s figures without considering revisions and context.
10) Use FOF responsibly in policy or investment analysis
– For policymakers: use sectoral net lending/borrowing trends to gauge where constraints or excesses are forming.
– For investors: use FOF to inform asset allocation (e.g., detect where savings are moving into equities vs fixed income), credit analysis, and macro risk assessment—but combine with market data and microanalysis.
Example applications (short illustrations)
– Financial stability monitoring: prior to a crisis you may see a rapid rise in household mortgage debt, expansion of bank balance sheets funded by wholesale borrowing, and increased household leverage—together indicating vulnerability.
– Fiscal analysis: the government sector’s net borrowing path shows financing needs and whether deficits are being funded domestically or by foreign capital.
– Investment research: a persistent growth in corporate equity issuance and shift of household portfolios toward mutual funds may signal expanding equity financing and retail participation in markets.
Limitations and cautions
– Timeliness: roughly 10‑week lag after quarter end (U.S. Z.1) makes the data backward‑looking.
– Aggregation: sector aggregates hide heterogeneity (e.g., some households may be highly indebted while the sector as a whole looks stable).
– Valuation vs. transactions: changes in asset prices can alter sector net worth independent of flows—distinguish transaction flows from valuation effects.
– Revisions and methodology changes: series can be revised; methodology updates can change historical comparability.
– Complexity: interpreting counterparties and cross‑border linkages can be technically demanding—use careful mapping of instruments and sectors.
Where to find FOF data and further reading
– Federal Reserve Board — Z.1, Financial Accounts of the United States (current release and historical data): https://www.federalreserve.gov/releases/z1/
– Federal Reserve — Z.1 Historical Data: https://www.federalreserve.gov/releases/z1/Hist/
– Investopedia — “Flow of Funds (FOF)” (introductory explanation): https://www.investopedia.com/terms/f/fof.asp
Conclusion
Flow of funds accounts are a foundational macro‑financial dataset that show how financial resources move across sectors and across borders. They are essential for understanding borrowing and saving patterns, assessing leverage and liquidity risks, and informing macroeconomic and financial policy. To use them effectively: define the question you want to answer, download the relevant Z.1 tables, focus on the right sectors and instruments, compute net lending/borrowing and key ratios, visualize trends, and always cross‑check with other data sources while bearing in mind lags, valuation effects, and aggregation limits.
Sources
– Federal Reserve Board, “Financial Accounts of the United States — Z.1” (release and historical data).
– Investopedia, “Flow of Funds (FOF)”.