Savings, debt and assets

Living standards and inequality are often discussed in terms of the flow of weekly or annual income. But just as companies are assessed through balance sheets detailing what they own and what they owe, a rounded picture of household finances must also include their accumulated stock of assets and debts.

Destitution

Families with no assets can be one broken boiler or car breakdown away from crisis and poverty. This is not a fringe group. Recent estimates suggest that around a quarter of the adult population has less than £100 put away in savings. And when people enter poverty, they are likely to fall into debt or arrears on basic household bills or rent. In this way escaping one emergency can bring about the next, as the weight of debt raises the risk of destitution and homelessness.

Families in this position are exposed. Millions of Britons look ahead to retirement with fear, knowing they don’t have enough put aside to live as they would wish to. With dwindling rates of home ownership among the working-age population, fewer people are acquiring a property to fall back on. And too few have sufficient rainy-day funds to get through anything other than a short break in earnings.

In the UK the ratio of private wealth to national income has doubled or more over the last 4 decades, creating a society in which what you own is more important than what you earn.

Recent interest rate rises make the future trajectory much more uncertain. But even if they produce a sustained reduction in wealth, it looks set to remain far bigger in relation to income than it ever was in recent history.

The rise of wealth matters for 3 main reasons.

1. It’s always and everywhere far more unequal than income.
2. Wealth is intricately bound up with debt (many assets take their value from somebody else’s obligation to repay, and so a society in which a large amount of consumption is funded by assets is one that those without meaningful wealth can’t hope to keep up with).
3. Debts and wealth appear to be closely connected to mental health (those with minimal savings report far more distress than those with decent savings).