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Tuesday, June 25, 2013

U.S. Median Wealth Only 27th in World

As I discussed last week, U.S. median wealth per adult is lower than many other countries. To be exact, it comes in at #27 for 2012, at $38,786 per adult. This is more than 1/4 lower than had been reported by Credit Suisse's Global Wealth Databook for 2011. I contacted one of the authors, Professor James Davies of the University of Western Ontario, to find out the reason for the big change for the United States as well as the even bigger change for Denmark.

Professor Davies was kind enough to lay out the technical issues for me. First, of all, data for mean wealth is more reliable than median wealth. For rich countries like the United States, there is usually household balance sheet information which provides high-quality information on total wealth and, when combined with population data, wealth per adult.

Wealth distribution data is more difficult to estimate accurately, although it is known to be more unequally distributed than income for every country, as the 2012 Databook reports. The reason Denmark had such a sharp increase in its estimated median wealth is that its wealth distribution survey information was becomingly increasingly questionable, so the authors changed to a different estimation method that is not comparable with previous figures.

Finally, Professor Davies said it was unlikely that U.S. wealth per adult dropped by 1/4 in one year, but that the new lower estimate is more accurate. The research team is still working on ways to make distribution estimates more accurate, such that year-to-year changes will be more meaningful. As he wrote to me, "We haven't emphasized year-to-year changes in the shape of the wealth distributions since we are still improving our approach to that and making changes each year."

That leaves the United States still with low levels of median wealth for rich countries. as Les Leopold reported on Alternet.  In total, it trails 20 OECD countries and six non-OECD countries.

These low levels of wealth contribute, of course, to the coming retirement crisis as Americans have low levels of savings to supplement Social Security, while almost half of private sector workers have no retirement plan of any type.  A solution to the crisis will require a tremendous push politically, but otherwise millions of Americans will be condemned to poverty in their old age.

Here is the list of the top 27 countries by median wealth per adult.

Country                        Median Wealth
                                     Per Adult

1. Australia                   $193,653
2. Luxembourg              $153,967
3. Japan                        $141,410
4. Italy                          $123,710
5. Belgium                    $119,937
6. United Kingdom         $115,245
7. Iceland                      $ 95,685
8. Singapore                  $ 95,542 (non-OECD)
9. Switzerland                $ 87,137
10. Denmark                  $ 87,121
11. Austria                     $ 81,649
12. Canada                    $ 81,610
13. France                     $ 81,274
14. Norway                    $ 79,376
15. Finland                    $ 73,487
16. New Zealand            $ 63,000
17. Netherlands              $ 61,880
18. Ireland                      $ 60,953
19. Qatar                       $ 57,027 (non-OECD)
20. Spain                      $ 53,292
21. United Arab Emir.     $ 47,998 (non-OECD)
22. Taiwan                     $ 45,451 (non-OECD)
23. Germany                 $ 42,222
24. Sweden                   $ 41,367
25. Cyprus                     $ 40,535 (non-OECD)
26. Kuwait                     $ 40,346 (non-OECD)
27. United States           $ 38,786

Cross-posted at Angry Bear.

52 comments:

  1. Those darn socialist Scandinavian countries are eating our shorts. Tell me again what the benefits of Reaganomics are.

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    1. Read the part about the number of Billionaires in the US, that will explain the benefits of Reaganomics. It only a few hundred people, but BOY DID THEY BENEFIT!

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    2. Many Americans are so arrogant and feel superior about themselves because US average wealth is high. But US average wealth is high because a few hundred extremely wealthy billionaires push the average up. The median American is poor. Americans need to wake up to the reality that right-wing capitalism or "free markets" is just a load of bullcrap that the American elite feed to average Americans to help them accept the fact that they are being exploited. The only solution is socialism (e.g. socialised medicine, welfare state, etc), as exists in Scandinavian countries, Australia, Canada, etc. You need to tax the rich and give to the poor.

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    3. This comment has been removed by a blog administrator.

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    4. The US is no-longer a capitalist country but is socialist if you look at it from the point that around 50% of the economy is government spending. The money is badly allocated and is wasted like gov. bailouts of private companies, excessive military spending and paying interest on high levels of government debt. Many countries that are considered socialist have a lot more of their economy in the private sector and that is what makes their economy stronger. The US has in fact a government run economy.

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    5. @Anonymous, socialism is not a question of government spending but of ownership of the means of production. U.S. public ownership is very low by global standards. In addition, I'm not sure where you get the idea that government spending in the U.S. is 50% of GDP. According to the Heritage Foundation and Wall Street Journal, for 2011 it was 38.9% of GDP: https://en.wikipedia.org/wiki/Government_spending

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    6. I believe that the figure of 38.9% includes state and local spending as well as federal government spending.

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    7. @Richard The US has the 2nd highest equivalent median(underline) Income in the OECD after Luxemborg.

      http://www.oecd-ilibrary.org/sites/soc_glance-2011-en/04/01/g4_ge1-01.html?itemId=/content/chapter/soc_glance-2011-6-en

      so your remarks aren't correct. plus all the countries above are more or less market based economies with more or less free markets

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  2. A thought comes to mind when I look at these numbers: what's the median age of an adult in these countries? It would stand to reason that countries with older demographics would have higher wealth per adult, since those adults would have had more years to (hopefully)accumulate wealth.

    Also, are these numbers net of debt? I would imagine so, but I'm surprised to see Australia at the top of the chart, and I'm curious as to whether that is simply a reflection of their yet-to-pop housing bubble.

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    1. Median age is a good question. I will have to take a look around and see if I can find an answer.

      These wealth figures are net of debt, correct.

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    2. I am also interested in the age question. I would look at the size of the old age pensions and the rate of homeownership as well. The bigger the government pension, the less of an incentive people have to build wealth when they are younger. The U.S.'s housing policy discourages home ownership by only allowing interest to be deducted.

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    3. Here is a source for median age: https://www.cia.gov/library/publications/the-world-factbook/fields/2177.html

      U.S. median age is 37.2. Of the 26 countries above U.S. median wealth per adult, by my count seven of them have a lower median age.

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    4. Australia has had a compulsory retirement (superannuation) scheme in place since the early 1990s - in which 9% of the salary of all employee's must be invested in approved assets until retirement age. I believe at last count these retirement funds had over A$1.7trillion under management - not bad for a country of 23 million. Australia's public debt levels are also relatively low. So while Australia's property and private debt levels are relatively high, I suspect these estimates of Australian median wealth are reasonable.

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  3. interesting post. stupid question: how exactly is wealth defined? is it total assets (home, car, savings, insurance, etc.) minus liabilities (credit cards, mortgage, etc.)?

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    1. Exactly right, assets minus liabilities. The report gives data for mean financial assets and mean non-financial assets (mainly real estate) as well as mean debt, for each country covered. The median figure is only available on net worth.

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    2. do pensions figure into this calculation? if so, could this skew the calculation of wealth against the US? places like singapore have enforced savings that can be used to purchase a house and can be exhausted through age and could be seen as an asset.

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  4. I would have to say the $63000 for New Zealand is a joke.
    I'm a Telecommunication Design engineer and I get half that figure.
    And the price we pay for American goods that figure can't be right either.
    Some bean counter has got it wrong or something is very wrong.

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    1. If you actually prove where the numbers are wrong, I'd like to hear about it.

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    2. To clarify, this is median WEALTH, not median income. If you make half that figure, and continue to do so for the next 10 years, while 20% of that goes to a mortgage/savings, then in 10 years you will accumulate that much wealth.

      Since the average adult is in their mid-to-late 30s, with around 15 years of work behind them, achieving this after 10 years with only 20% investment would make your job significantly above average.

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    3. As a Norwegian, i can atleast attest to the fact that the numbers regarding Norway are (way) off, i suspect that 1) the study has used tax numbers from the Norwegian government without understanding that these are for taxation purposes only, and when estimating fortune tax houses are valued at 25% of real market value compared to for example how stocks are valued. (Norwegian house prices are among the most expensive in the world, and due to government policies promoting ownership (such as the 25% valuation method mentioned above)the vast majority of norwegians own their own house). 2) the authors have not taken into consideration the norwegian state pension fund, the biggest state fund in the world, if you divide this fund on the number of norwegians (only 5 million) right now it's over 200000$ per person.. This is sloppy work by the authors of this study indeed!

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    4. Anonymous from Norway, from your description the state pension fund there is analogous to the Social Security Trust Fund in the United States. The authors don't count that for the U.S., only assets personally owned.

      You'd have to check with the authors as to how they treated Norwegian housing. Or check the study first.

      Thanks for stopping by!

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    5. the authors have to include u.s. social security and govt pensions with u.s. wealth, as other countries (uk, canada,...) have more explicit social retirement programs, Similar ira's. This explains the U.S. falling behind the U.k.
      anon

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  5. The article is about median wealth, not median income. Median income in the U.S.is indeed more than 50% greater than median income in New Zealand, but partly because income is more evenly distributed in New Zealand than it is in the U.S., New Zealand's median household has been able to accumulate more than 50% more wealth than its American counterpart.

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  6. All of this means nothing without a methodology, I'm afraid. there can't be a his discussion here unless we know more about the study and how it defines wealth.

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    1. The original study (linked in article) discusses the methodology in detail. There was no way I could cover it all in a short blog piece.

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    2. Do you know how this list would change if the statistic used was financial weatlh (per adult)... Financial wealth does not include equity in primary resideance. Given all that has happend with home values in the US our ranking could be highly influenced by a housing market that has lost over 25% +or- of its value.

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    3. The study gives no way to determine the ranking of median financial wealth per adult. In the U.S., the overall ratio for mean financial wealth to non-financial wealth is just over 2:1, but the ratio would be higher at the top and lower at the median (my best guess). That is probably true in the other countries, but it's possible that there are enough differences that a few countries might fall below the U.S. on that ranking.

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    4. There is actually a huge difference The average Australian owns $210,000 of Real Estate, while the average american owns $62,500 of Real Estate. In financial assets it's more equal the average american owns $160,000 while the average Australian owns $140,000

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    5. Mohamed, what is the median Real estate ownerships in both cases. The blog post is about the median which is a much better indicator of what the typical person on the street experiences. When you use the average/mean with wealth and assets like homes, it is very easy to skew the results.

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  7. You can increase the US value by 25% to 48,483 (a gross exaggeration of the effect of not including the primary residence). It moves to US up to 21st place. Big deal!

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  8. How about a median personal debt chart? Then graph the correlation or lack thereof.

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    1. Unfortunately, the report only has data on mean debt, not median. I agree it would be useful to see.

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  9. Most in US do not have any financial wealth.

    In every study a wide difference exists between Mean Wealth and Median Wealth in the US. It is caused by the top 1% having 39% of wealth and the bottom 80% about 10% of overall wealth.

    I try to read any studies on this subject. The Fed Z1, Current Population Survey, Credit Suisse Global Wealth Survey, Federal Reserves Survey of Consumer Finances and Pew are good resources.

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  10. Hopefully the authors tried in earnest to get these numbers and not to accumulate numbers that prove a point. A pretty difficult task to be sure, since even calculating my own worth isn't easy. If you OWN a 2009 Honda Accord, what is that worth? If you owe money to a bank for it, at what point is it a debt and at what point an asset? The debt has to be balanced against its value. A lot of variations based on condition, options, mileage...What about a $1,500 designer purse. Is it wealth of $1,500 or the $200 you could get for it on ebay? Did they consider what you own? How much wealth is my couch? Americans have big homes, and most have a living room set and a family room set. What is the wealth of my Social Security account worth? How does that calculation compare to my 401k that has a solid number, but changes with the stock market? Just comparing liquid assets vs debt doesn’t seem to capture the American experience. There is more wealth inside a 2,500 sq ft American home than a 600 sq ft apartment in Tokyo.

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    1. In this study, the potential value of your Social Security benefits is not included, but the value of your 401k is counted.

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  11. The US is near the top in Median income but 27th in Median wealth. Part of this may be attributed to the extremely high top wealth holders in the US skewing the median but the primary issue is the attitudes of the American people. There is no emphasis on savings or building wealth over time in the US. Americans spend money like children, buying whatever toy or bauble which catches the eye - often with credit cards actually decreasing wealth.

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    1. The MEDIAN is half above and half below. The top half could own a thousand times what they do, and it would not change the MEDIAN one bit. The AVERAGE would change, not the MEDIAN.

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  12. A quick view of the details of the data shows that at least 2 items skew the results: value of your home and value of pension plans. For example, the median house value is $531k in Australia and $221k in the US (time period 2010-2011). Question: Is housing data comparable in this analysis - are Australian homes more valuable or is supply tighter and demand higher leading to higher home values - are US homes less valuable comparably or is supply and demand better balanced and/or are homes built more cost efficiently.

    Australia results include value of superannuation plans and US results do not include value of Social Security but does include 401k plans. The Australia stock market has had a large positive run driven by commodity sales to China which positively impacted superannuation plan values.

    An initial blush would indicate that this is not an apples to apples comparison. A breakdown of the wealth components by country and then a normalization would be needed to provide an accurate analysis. Once provided a reasonable comparison of the facts could be completed.

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    1. Given the US government is broke and will have to borrow to fund pensions, it understandable that these planned future pensioned payments aren't classified as an asset. A superannuation fund in Aus, as with a 401k in the Usa, contains real tangible earned revenue that belongs to an individual through employment; so gets counted.

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  13. I find it interesting that when people talk about wealth they ignore the spending side of the equation. Building wealth is just a matter of spending less than you earn consistently over a period of years. I suspect a lot of the problem with wealth preservation in the US has to do with keeping up with the Jones'

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    1. Not "a lot of the problem" when compared to 60 years ago. Federal Reserve had not devalued US Dollar to current critical low 15 cents. Our fathers and grandfathers were able to buy a home, vehicles, support a family right out of high school. Today most Americans believe high schoolers have no such right. Stagnant minimum wages, good paying jobs shipped overseas, crippling student loans, LOWERS median wealth for each individual.
      Your comment puts the blame squarely on the victims of our economic degradation.

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  14. You need to take into account the percentage of home ownership in Australia and the US as well as home value.

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  15. As an Australian reader of this I find it comfirmation of a good situation for Australia, sad news for the USA, and not surprising either way.

    There are lots of reasons besides home ownership why this result is accurate. Spending is part of the problem - Australians are saving more, in pension funds and shares as well as houses. Taxes are lower too, compared to the combination of Federal, State and Local government taxes in USA.

    US citizens face many financial risks that undermine their ability to save wealth. In Australia there are free public hospitals. There are non-time limited social security payments if you lose your job (now) or become disabled. In USA any of those events can be financially disastrous.

    The incomes for average people are higher in Australia. A new university graduate here will earn at least $55K; the average wage is $70K AUS. Student fees and loans are less.

    So we have higher wages, lower taxes, better benefits and our previous savings were not wiped out in the financial crisis by an out of control banking sector. Why then do Americans have trouble understanding why Australians are wealthier?

    I know the posters on this blog understand this, but the graph above illustrates how much the last decade of politics has cost the average American.

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  16. Median Networth will be heavily be affected by Real Estate Prices and percentage of home ownership.
    The Median Price of a house in Australia is $550,000 while in the US it is $220,000
    2/3 of the population in the US and Australia own their homes.
    Also households in Australia tend to have slightly less debt than their American Counterparts
    Therefore it is of no surprise that both the median and average household Net worth in Australia is much higher than the US, but all it means is that the if the median homeowner in Australia were to sell his home today, he would get more on the market for it than the Median American homeowner. (The downside is of-course if you're a buyer)

    Australia is a very nice place to live and has a strong economy and a high quality of life and I'm sure there are many advantages of the Australian system over the American system, however there is one fact that people miss when comparing America to other Industrialized nations
    America has one of the highest Median Household Incomes in the world (2nd place in OECD after Luxemburg), yet has a much lower cost of living than other Industrialized nations such as Japan, Australia, Scandanivia, ect. Therefore people in American can get the best of both worlds.

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    1. The point you arent getting Mohamed, with this emphasis on housing prices, is that the Australians had the money to buy and pay for the houses. If they instead rented an apartment and put that money in a modestly earning financial account, they would still have that wealth, perhaps even more.

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  17. This is an article which talks about Real Estate Prices in Australia. This is from 2007 which was the height of the housing bubble in the US. Yet the article mentions that housing prices in Australia were even much more expensive with the the median priced house being 6.6 times median income versus 3-4 times median income in the US and Canada
    http://www.brisbanetimes.com.au/articles/2007/11/12/1194766632027.html

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  18. Kenneth, Good posts
    I am geatly interested in knowing how they measure Personal net worth eg The published Suisse Bank wealth report

    With Net worth do they include their Primary Residence?
    or Just all Assets - Primary residence - Total Liabilities

    Thank you so much

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  19. The issue is really clear and Credit Suisse does an in depth publication each year. If you are American and don't like it and want to make excuses to justify a difference of opinion then THAT is the reason you have slipped. Instead of shooting the messenger why don't you actually do something about it? To consider that a western country in Asia , Light YEARS away from friendly countries, with a small population , is doing so good seems to annoy Americans for some reason, Australia has a population of just over 20 million but is the worlds 12th largest economy and even on the liveability scale of the UN has been measured consistently at No 1 or 2 for some time now. SO stop whining you gringos, accept the data from many different scales and if you are pissed off at it then ACT instead of making dum ass excuses!

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    1. Of course, to me, Australia is a positive example of middle class friendly policies. Higher minimum wage, lower unemployment, better employment protections, health care, more economic security generally--what's not to like?

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  20. Is this affected by exchange rate fluctuations and the continual inflation of the dollar caused by the Fed?

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  21. Given this is an OECD report, I wouldn't think 2013 data will be available for a few more months. But just curious, are there any more up--to-date reports? Also would be interested to see some other statistics such as mean (average) and other quartile/percentile breakdowns.

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    1. This is actually not OECD data, but a report completed annually under the auspices of the Swiss bank Credit Suisse. It is issued in October using mid-year data every year.

      Here is the link to my story on the most recent report: http://www.middleclasspoliticaleconomist.com/2013/10/median-wealth-increases-but-us-still.html

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