Tuesday, October 6, 2015

Measuring Growth in Global Wealth and Global Wealth Inequality

This year's edition of the Allianz Global Wealth Report looks at the vast wealth that had been accumulated around the world to the end of 2014.  In total, €132 trillion or US$145.6 trillion in personal financial assets had been accumulated by the households of the 53 nations included in the study, showing year-over-year growth of more than seven percent for the third year in a row.  This is rather surprising given the current low interest rate environment, however, it shows that households are prepared to save more and rely less on interest income.  The total global liabilities of households rose by 4.3 percent in 2014 to €35.2 trillion or US$39.4 trillion, leaving the global household debt ratio at 64.4 percent (private household liabilities as a percentage of nominal economic output).  Net financial assets hit a new high of €100.6 trillion or US$112.7 trillion, up 8.1 percent on a year-over-year basis.  

Here is a graphic showing how global gross household assets have grown since 2000:

Private savings have more than doubled since the end of 2000, resulting in an average annual growth rate of 5.3 percent.  If we deduct an average global inflation rate of 2.6 percent, the continuous growth in the global population, real household assets have grown at an average rate of 1.9 percent annually since 2000.

Let's look at some key points from the report.

1.) The biggest growth in wealth was experienced in the Asian region where gross financial assets increased by 16.6 percent in 2014, particularly in China where securities assets increased by 27 percent to the end of 2014.  China's gross financial assets exceeded those of Japan for the first time in 2014.

2.) In regional rankings, households in North America are the richest in the world with net financial assets averaging US$148,444 per capita.  In sharp contrast, Eastern Europeans are at the lower end of the scale with net financial assets of US$3046 per capita.

3.) The wealth upper class comprises just under 10 percent of the total population in the nations studied in the report (420 million people).  This group holds around 80 percent of the world's total financial assets.  This group's share of global net financial assets has declined by 12 percentage points since the turn of the new millennium.

4.) The wealth middle class has surpassed the 1 billion person mark for the first time.  Since 2000, nearly 600 million people have accumulated sufficient wealth that they have transitioned from the low wealth category to the middle wealth category.  This group holds almost 17 percent of global financial assets.  Most of this transfer has occurred in China with two-thirds of the global wealth middle class coming from Asia and 85 percent from China.

Here is a graphic showing the global distribution of low-, medium- and high-wealth classes:

Global household financial assets were held in three main classes:

1.) Equities/Securities:  The share of the global asset portfolio held in securities totalled €52.6 trillion or US$58.9 trillion, remaining stable at 39.8 percent, of the value of all assets held by households, down 3 percentage points from the 2007 level.  Global investments in equities rose by 7.5 percent on a year-over-year basis with most of the growth coming from Asia, particularly Japan and China.  Assets held in securities by Chinese households grew by more than 36 percent in 2014.  In contrast, assets held in securities by North American households grew by only 4.4 percent and in the case of European households, growth in securities held by households rose by 4.8 percent.  

2.) Bank Deposits:  Bank deposits have become increasingly popular with global overnight deposits, term deposits and savings deposits up by 52 percent from the level in 2007, reaching €38 trillion or US$42.6 trillion.  On a year-over-year basis, bank deposits rose by 6.5 percent and comprise 28.8 percent of all household assets.

3.) Insurance Policies and Pensions:  Year-over-year growth in pension and insurance claims rose by 7.2 percent globally with most of the growth in Latin America (at 13.6 percent) and Asia excluding Japan (at 11.1 percent).  Households had €42 trillion or US$47 trillion in this class of assets, comprising 31 percent of total household assets.

The authors of the report went on to calculate the Gini coefficient for each nation and compared it to the Gini coefficient for the year 2000.  The Gini coefficient measures the distribution of wealth; a lower Gini coefficient means that wealth is more equally distributed within a nation whereas a higher Gini coefficient means that wealth is less equally distributed.   Let's start with this map showing the regional wealth distribution:

It is quite easy to see that , on a per capita basis, North Americans have by far the highest net financial assets.  

Here is a graphic showing the Gini coefficient for the United States, comparing it to that of European nations and how the Gini has risen since 2000 (meaning that wealth inequality has risen):

In this closing section, let's focus on Canada and the United States.  The economic crisis of 2008 - 2009 and sluggish economic recovery since then has had a significant and detrimental impact on wealth distribution in the United States.  This has resulted in the United States having the highest Gini coefficient among all 53 nations in the analysis.  Interestingly, while Canada and the United States have only 5 percent of the global population, they have 24.8 percent  share of global GDP and 44.8 percent of the global financial assets.  Interestingly, the financial assets of Canadian households rose 8.7 percent, nearly double the 4.5 percent rate in the United States over 2014.  Canadian assets held in securities rose by 10.5 percent, reflecting gains in the stock market, some of which were reversed as oil prices collapsed in late 2014 and throughout 2015.  American households hold 53.1 percent of their financial assets in equities compared to only 39.1 percent in Canada as shown on this graphic:

The other big difference between the two nations is the level of household debt as shown on this graphic:

Obviously, the Canadian debt situation is concerning, particularly since Canadian's gross financial capital assets averaged only US$128,441 compared to US$196,011 for their American counterparts.

Allianz's annual global wealth report shows us the growing global wealth disparity that exists, not only between nations but within nations.  While the world has welcomed many new members to the wealth middle class, it will be interesting to see if this trend is sustainable, particularly given that the growth was mainly in China, a nation with what can only be termed a "shaky economic foundation". 

1 comment:

  1. Thanks for a very interesting post. It should be pointed out that how or where wealth is held varies greatly across the world. If you rated people on a "wealth chart" by how many tangible assets they owned you might be shocked to find much of the wealth people own is in paper and this is full of risk.

    It could be said that "paper wealth" is merely a promise of future value. Unfortunately, this leaves much of society and many rich individuals vulnerable to rapid financial loss if the tides of fortune shift or if values rapidly change. More on the subject of how and where wealth is stored in the article below.