As well as income, a person may own assets that generate income. The income they save adds to their wealth; borrowing for consumption may decrease it. A person’s net wealth is their assets minus their liabilities (such as consumer debt and mortgages). The main forms of wealth are:
- personal property like houses and cars
- savings held in accounts in banks and other financial institutions
- investments in income-producing businesses, normally in the form of shares or bonds.
Household wealth
To get a clearer picture of people’s quality of life, it is useful to examine the wealth of households rather than individuals.
The two most recent official surveys of household wealth are the Household Survey of 2001 and the Survey of Family, Income and Employment (SoFIE) in 2003/4.
In 2003/4 the SoFIE subject population of 2.9 million adults recorded a combined net wealth of $467.67 billion, representing the difference between $559.41 billion of total assets and $91.73 billion of total liabilities. Average wealth per adult was $160,000. Because there are people with great wealth, which raises the average, the median – the level of wealth that half the population falls below – was only $70,000.
The most important single asset for most households is the house they live in. In 2001 such houses made up 42.4% of net wealth. Add in other residential properties (6.2%) and other properties (5.7%) (but not farmland), and property came to over half (54.3%) of all household net wealth. Offsetting this were mortgages, which represented over a quarter of the value of the property.
Businesses that households own came to over a fifth of the total wealth. This was almost equally divided between farms and other businesses.
Financial assets such as bank deposits, superannuation, life assurance and family trusts together amounted to about a quarter of the total assets. Shares and managed funds were 6.9%, and possessions such as motor vehicles and household goods were just over 8%.
Household wealth distribution
Wealth is much more unequally distributed than income. The 2003/4 SoFIE survey found that the top 10% of economic units owned 51.8% of the net wealth of households. They averaged $835,000 each in 2001. The top 1% owned 16.4% of wealth, averaging $2.6 million each. The bottom 20% of economic units had zero or little wealth – some were in debt.
Some 6.5% (191,000) of those surveyed in 2003/5 had negative net worth. This was most common in the age group of 20–24-year-olds (some 70,000), many of whom would have had student debt (and perhaps some credit-card debt).
This data does not include ‘human capital’ – the ability to earn income through work. Most people have some of this ability, which is why income is more equally distributed than wealth. The data also does not include pension entitlements.
Rich women
In 2008 there were eight New Zealanders whose wealth exceeded $1 billion. Only one, Lynette Erceg, was a woman. Erceg’s money derived from the sale of her late husband’s liquor company. The richest New Zealand woman previously was Jan Cameron, who founded the outdoor clothing company Kathmandu.
Wealth distribution is strongly affected by the life cycle. Some (but not all) of those with little or even negative wealth are young adults who may have student loans, but have a high ability to earn income. As they get older they may pay off their loans, buy houses and pay off the mortgage, acquire inheritances, invest in the pension and make other savings, thereby steadily increasing their wealth. In 2003/4 net worth peaked between the ages of 55 and 69 with a mean net worth of $285,000. The median was $170,000.
Even so, there is considerable variation in wealth within any age group.