Tuesday, 18 December 2018

Household net wealth

My take on the latest Stats NZ Household Wealth survey is a bit different from Max Rashbrooke's.

Here's Max:
The Household Net Worth survey by Statistics New Zealand shows the wealthiest one percent have 20 percent of all assets and the wealthiest tenth have 59 percent. The poorest half of adults - 1.8 million New Zealanders - have just 2 percent of all wealth. Māori net wealth is significantly lower than that of Pakeha.
These figures are broadly unchanged since the last such survey in 2015. But that's barely reason to celebrate.
Wealth - in the sense of things that people own, like houses, cars, financial investments and cash in the bank - provides security and stability. It is something people can draw on during tough times, a stake in the community, a base from which to plan for the future.

So it is hugely concerning that so many New Zealanders have so little wealth. And their position is not improving. Statistics New Zealand reports that the poorest 40 percent have seen no increase in their wealth in the last three years.
But look at the chart underlying this:
There was a half a percentage point increase in the number of people with net wealth of less than $100,000: those will be people with substantial debt. When I check the student loan tables, about 0.075% of the domestic population has student loan debt into those figures - the rest has to be other stuff. 

Once we get into the positive net wealth categories, every net wealth category up to and including the $400-500k band had a smaller proportion of the population falling into it. Most bands above that saw an increase in the proportion of the population in the band, barring the $700-900k group. And the proportion of people with more than $1.5m in net wealth increased from 8.3% of the population in 2015 to 12.5% of the population in 2018.

It would then be fair to characterise this as an overall upward shift in wealth, barring a small increase in the proportion of the population with substantial net debt.

The median person in 2015 would have been in the $200-$300k net wealth range. The median person in 2018 is in the $300-$400k net wealth range. But note that the figures are not inflation adjusted.

The overall curve looks to me to have shifted to the right, barring the increase in the proportion of people with substantial net debt of more than $100,000. All the focus on what proportion of the population has what proportion of overall wealth misses what looks like an overall increase in wealth.

And recall too that life-cycle stuff enters heavily here. These annual snapshots give a picture of the cross-section in any particular year. But people accrue wealth as they age, then start consuming from that wealth in retirement. Stats' press release has young people (age 15-24) with median net worth of $2k and older people (age 65-74) with net wealth of $416k. 

Every year, new people are born, existing people age, and some people die. Looking at annual snapshots doesn't tell us anything about how people move through the life cycle. Every person in 2015's bottom 40% could have increased in wealth, with no change to the wealth band of 2018's 40th percentile person, as the 2015 people move up through the age ranks and new people come in at the bottom. 

I'd also be pretty nervous about claims around the proportion of wealth held by different quintiles if substantial net debt held by a small proportion counts at the bottom. Some of it is student loan debt where the human capital generated by that education is not counted in the wealth tables - but only a small amount. I wonder if some of it is mortgage debt where the corresponding housing asset is held in a family trust not included in the wealth. Does it really seem likely that anybody would lend over $100,000 to those unlikely to be in a position to be able to pay it off? 

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