The Global Distribution of Household Wealth
by James Davies, Susanna Sandström, Anthony Shorrocks, and Edward N. Wolff
While the richest 10% of adults in the world own 85% of global household wealth, the bottom half collectively owns barely 1%. Even more strikingly, the average person in the top 10% owns nearly 3,000 times the wealth of the average person in the bottom 10%. These are some of the results that emerge from a study of the distribution of household wealth undertaken for the UNUWIDER project on Personal Assets from a Global Perspective.
We estimate the level and distribution of wealth across all countries in the world using a comprehensive concept of household wealth. In everyday conversation the term ‘wealth’ often signifies little more than ‘money income’. On other occasions economists interpret the term broadly and define wealth to be the value of all household resources, both human and non-human. Our study assigns wealth its longestablished meaning of net worth: the value of physical and financial assets less debts. In this respect, wealth represents the ownership of capital. Although capital is only one part of personal resources, it is widely believed to have a disproportionate impact on household wellbeing and economic success, and more broadly on economic development and growth.
Our estimates of wealth levels are based on household balance sheets and wealth survey data which are available for 38 countries. Fortunately, these include many of the rich OECD countries as well as the three most populous developing countries, China, India and Indonesia; so the data cover 56% of the world’s population and 80% of household wealth. Careful analysis of the determinants of wealth levels in these countries allows imputations to be made for countries without data.
Our estimates of wealth distribution are based on household asset distribution data for 20 countries. For countries without this type of direct information, the degree of wealth concentration was estimated from income distribution data (where available), using the relationship observed between income and wealth inequality in countries with both kinds of data. The remaining countries, covering only a few percent of world population, were assigned the average wealth distribution pattern for their region and income class.
No use was made of lists of the world’s billionaires, or of the wealthiest individuals and families within various countries, provided by Forbes magazine and other journalistic sources. Incorporating such evidence would boost estimated global wealth inequality somewhat —increasing the share of world wealth held by the top 1% by a couple of percentage points, for example — but would otherwise alter our story little.
Globally, household wealth is more concentrated, both in size distribution and geographically, when official exchange rates are employed rather than PPP valuations. Thus a somewhat different perspective emerges depending on whether one is interested in the power that wealth conveys in terms of local consumption options or the power to have influence on the world financial stage. Since a large share of global wealth is owned by people who can readily travel and invest internationally, it is more appropriate to use official exchange rates when studying the global distribution of wealth than when looking at the global distribution of income or poverty.
Wealth levels across countries
Using official exchange rates, global household wealth in the year 2000 amounted to $125 trillion, equivalent to roughly three times global GDP or to $20,500 per citizen of the world. In terms of purchasing power parity dollars, the corresponding world value was PPP$26,000 per capita, roughly the same as the average level in Poland or Turkey.
As illustrated in the world map (Figure 1), wealth levels vary widely across nations. Among the richest countries, mean wealth was $144,000 per person in the USA and $181,000 in Japan. Lower down among countries with wealth data are India, with per capita assets of $1,100, and Indonesia with $1,400 per capita. Even within the group of high-income OECD nations the range includes $37,000 for New Zealand, $70,000 for Denmark and $127,000 for the UK.
The regional pattern of asset holdings shows wealth to be heavily concentrated in North America, Europe, and high income AsiaPacific countries which together account for almost 90% of global wealth (Figure 2). Although North America has only 6% of the world adult population, it accounts for 34% of household assets. Europe and high income Asia-Pacific countries also own disproportionate amounts of wealth. In contrast, the overall share of wealth owned by people in Africa, China, India, and other lower income countries in Asia is considerably less than their population share, sometimes by a factor of more than ten (Figure 3).
Comparing per capita wealth and per capita GDP across countries shows that wealth is distributed even more unequally than income. High income countries tend have a higher share of world wealth than of world GDP because their wealth to income ratios are above the world average. The reverse is true of middle and low income nations.
Wealth to income ratios are especially high in the UK, Italy, and rich Asian nations. Lower than expected values are recorded for eastern European countries like the Czech Republic and Poland, along with the Nordic countries and South Africa. Eastern European countries are a heterogeneous group with many different features. In this region, private wealth is on the rise, but has still not reached very high levels. Assets like private pensions and life insurance are held by relatively few households. In the Nordic countries, the social security system provides generous public pensions that may depress wealth accumulation. South Africa is rich in resources and has well-developed financial institutions; but the fact that the country has a large low-income population and exhibits some of the characteristics of less-developed countries, may account for the low wealth-income ratio.
Global wealth inequality
Estimation of the world distribution of wealth requires information to be combined on wealth differences between countries and within countries. The concentration of wealth within countries varies significantly, but is generally high. The share of the top decile ranges from around 40% in China to 70% and beyond in the United States and certain other countries. Typical Gini coefficients for wealth lie in the range 0.65-0.75, and some are above 0.8. In contrast, the mid-range of income Ginis is 0.35 to 0.45. Interestingly, two high wealth economies, Japan and the USA, exhibit very different patterns of wealth distribution, with Japan recording a wealth Gini of 0.55 while that of the USA is around 0.80.
Wealth inequality for the world as a whole is higher still. Expressed in terms of the adult population of the world, we estimate that net assets of $2,160 per adult in the year 2000 was sufficient to place a household in the top half of the world wealth distribution. At least $61,000 per adult was needed to belong to the richest 10% of households, while membership of the top 1% required a little over $500,000 per adult. The latter figure indicates that a family need only be moderately wealthy in Western terms to be among the top percentile of world wealth-holders.
Our results show that the top wealth decile owned 85% of global wealth in the year 2000. The richest 2% of adults in the world held more than half global wealth, and the richest 1% of adults alone accounted for 40% of all household assets. In contrast, the bottom half of the world adult population owned barely 1% of global wealth. The Gini value for global wealth is estimated to be 89%; the same Gini value would be obtained if $100 shared amongst 100 people in such a way that one person receives $90 and the remaining 99 get 10 cents each.
North America, Europe, and rich Asia-Pacific monopolize the top wealth decile
Given the high concentration of wealth in North America, Europe, and rich Asia-Pacific countries, it is not surprising to discover that almost all of the world’s richest individuals live in these countries. The breakdown of the global wealth distribution in Figure 4 shows that each of the regional groupings contribute about one third of the members of the world’s wealthiest decile. China occupies much of the the middle third of the global wealth distribution while India, Africa and low-income Asian countries dominate the bottom third. As shown in Figure 3, for all developing regions of the world, the share of population exceeds the share of global wealth, which in turn exceeds the share of members of the wealthiest groups.
The representation of any given nation in the world’s richest 10% depends on three factors: the size of the population, average wealth, and wealth inequality within the country. Countries that account for more than 1% of the top wealth decile comprise a rather exclusive group. Figures 5 and 6 show that the USA is in first place with 25% of the members of the global top decile and 37% of the top percentile. Japan features strongly in second place with 20% of the top decile and 27% of the top percentile.
Differences in wealth composition
Major differences are observed across countries in the composition of asset holdings, a result of different influences on household behaviour, such as market structure, regulation and culture. As indicated in Figure 7, real assets, particularly land and farm assets, are more important in less developed countries. This reflects not only the greater importance of agriculture, but also immature financial institutions.
The types of financial assets that are owned also show striking differences across countries. A breakdown between savings accounts, shares and equities, and other financial assets, shows that savings accounts feature strongly in transition economies and in some rich Asian countries, while share-holdings and other types of financial assets are more evident in rich countries in the West. Part of the explanation is poorly developed financial markets in transition countries, while savings accounts are favoured in Asian countries because there appears to be a strong preference for liquidity and a lack of confidence in financial markets.
Other types of financial assets are more prominent in countries like the UK and USA which have well developed financial sectors and which rely heavily on private pensions.
Finally, and perhaps surprisingly, household debt is relatively unimportant in poor countries. While many poor people in poor countries are in debt, their debts are relatively small in total. This is mainly due to the absence of financial institutions that allow households to incur large mortgage and consumer debts, as is increasingly the situation in rich countries. Many people in high-income countries have negative net worth and—somewhat paradoxically—are among the poorest people in the world in terms of household wealth.
James Davies is a Professor, and the RBC Financial Group Fellow, in the Department of Economics at the University of Western Ontario. He is the Director of the WIDER project on Personal Assets from a Global Perspective.
Susanna Sandström is a Research Associate at WIDER. She has previously held positions at the Luxemburg Income Study and Statistics Finland.
Anthony Shorrocks is the Director of WIDER and has previously held positions at the LSE and University of Essex.
Edward Wolff is Professor of Economics, New York University, Senior Scholar, Levy Economics Institute of Bard College, and Research Associate, National Bureau of Economic Research.