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Individual Net Worth in New Zealand: A Preliminary Analysis of a New Survey

John K Gibson & Grant M Scobie Conference of the NZ Society of Actuaries

Rotorua, November 13-15, 2002

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Acknowledgements

• Statistics NZ

• Office of the Retirement Commissioner

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Outline

• New Survey

• Some Basic Results

• What Determines Net Wealth

• Are there Ethnic differences?

• Do Student Loans matter?

• Human capital – a hidden asset?

• Conclusions and Unfinished Business

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Household Saving Survey

• Net wealth of NZ households

• 2001 – first time; assets & liabilities

• Background: Retirement Income Act 1993

• Periodic Review Group

• 6,600 households approached

• Plus Maori “booster” sample

• 74% response rate : n = 5374

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Coverage

• Households (not institutions)

• 18+ age

• Resident of NZ

• One individual per household – randomly selected.

• If couple present, then both included – assumed wealth was split 50:50

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Sample Size

2 ,392In d ivid u a ls

2 ,982C o u p les

n = 5 ,3 74

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Assets & Liabilities

• House 36%• Farms & Business 18%• Super. & Life Ins 8%• Trusts 6%• Shares & Funds 6%• Bank deposits 6%• Rental Prop 4%• M/Vehicles 4%• TOTAL $444bn

• Mortgage 80%• Bank Debt 10%• Student Loan 5%• Credit Card/ HP 4%

• TOTAL $68bn

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Structure of liabilities: individuals

Type of Liability

Median Value

Percentage of all individuals reporting holding this asset (%)

Mortgage $68,000 17.0Student Loan $9,000 20.6

Credit Card $800 33.7Bank debt $2,000 21.5

Hire purchase $1,000 14.9

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Structure of assets: individuals

Type of Asset Median Value

Percentage of all individuals reporting holding this asset (%)

Property $139,000 36.7Super $12,000 11.6

Business $30,000 4.4Bank deposits $1,200 89.0

Trusts $101,700 1.4Maori assets $15,000 2.8

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Structure of assets: international

Type Canada

%

USA

%

NZ

%

Residence 38 28 36

Other property 8 10 10

Superannuation 15 11 6

Shares & Funds 6 18 6

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Distribution of Net Worth

Negative 23

$0 - $20,000 34

$20,001 - $100,000 16

$100,001 - $500,000 23

$500,001 and more 4

Level of Net Worth Percentage of Individuals

Total 100

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Inequality in the Distribution of Income and Wealth

Proportion of individuals

Share of Income or Wealth

Perfect Equality

50%

HDI

NW

0100

100

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Gini Coefficients:

0

EQUAL

1

UNEQUAL

0.322 0.689

Household Disoposable Income

Net Worth

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Net Worth by age: individuals

-50,000

0

50,000

100,000

150,000

200,000

250,000

18 24 30 36 42 48 54 60 66 72 78 84 90 96

Age

Net

Wor

th

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What matters for net worth?…1

Variable Impact

Age Significant

Gender NS

Marital status NS

Maori NS

Pac Is NS

Asian + ($45,500)

Other NS

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What matters for net worth?…2

Variable Impact

Migrant NS

Rural + ($66,800)

Metro + ($18,800)

Region 10 + ($80,000)

Yrs Sec. Schooling + ($7,500)

Rec’d Inheritance + ($45,500)

Amount of Inheritance + 56 cents per $1

Expect Inheritance + ($23,200)

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What matters for net worth?…3

Variable Impact

Age first bought property Significant (-$2,100/yr)

Property as share of NW Significant (-$36,000/yr)

Shares as share of NW NS

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What matters for net worth?…4

Variable Impact

Main income self-emp Sig (+$250,000)

Main income NZ Super Sig (-$54,000)

Main income other pension NS

Main income other support Sig (+$26,000)

Main income investment Sig (+$270,00)

Main income other Sig (+$111,000)

Main income not spec. Sig (+$58,900)

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What matters for net worth?…5

Variable Impact

Age at first employment NS

Number of years employed Sig (+$1,250)

Full time NS

Unemployed NS

Not in labour force NS

Labour Force status relative to part-time

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What matters for net worth?…6

Variable Impact

Occupation: Managers NS

Occupation: Professionals NS

Occupation:Technical NS

Occupation:Clerical Sig (+$39,000)

Occupation: Service & Sales NS

Occupation: Agric. & fisheries Sig (+$83,000)

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What matters for net worth?…7

Variable Impact

Occupation: Trades NS

Occupation: P&M Operators NS

Occupation: Elementary NS

Occupation: Not specified NS

Unemployed NS

Occupation relative to not in labour force

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Individual Net Worth by Ethnicity

Ethnic Group Mean Median

European/Pakeha 119,900 21,700

Maori 38,900 800

Pacific Islands 46,400 0

Asian 59,900 3,000

Total 97,900 10,300

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Effect of Ethnicity on Individual Net Worth: Conditional Estimates

Ethnic Group Coefficient t-value

Maori -350 -0.04

Pacific Islands 16,900 +1.06

Asian 52,900 +3.17

Constant 118,500

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Factors explaining Maori-Pakeha differences in net worth

-90,000-80,000-70,000-60,000-50,000-40,000-30,000-20,000-10,000

010,000

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Human Capital?

• Plumber: – Assets: $120,000– Liabilities: $60,000 NET = +$60,000

• Dental Student: – Assets: Nil– Liabilities: $60,000 NET = - $60,000

• Something is missing?

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Estimating human capital

kRtP

kty

kug

ktH

,1)1()1)(1(

Present value of future labour earnings

Allow for unemployment, real growth and survival

Recursive

Allows for market based labour income to age 65

No change of status - conservative

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Human capital of Pakeha females

age of respondent

Unqualified School Qual Post-Sch Vocational Degree

20 25 30 35 40 45 50 55 60 65 0

200000

400000

600000

800000

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Human capital of Pakeha males

age of respondent

Unqualified School Qual Post-Sch Vocational Degree

20 25 30 35 40 45 50 55 60 65 0

500000

1.0e+06

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Conclusions…1

• Unequal distribution of wealth

• Partly reflects age structure

• Age is a key variable

• Income matters

• Not much else:– Gender – Marital status – Migration

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Conclusions…2

• Inheritances matter

• Secondary schooling matters

• Buying property matters

• Years employed matters

• Student loans – some modest effect

• No ethnic effect

• Human capital – could be very important

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Caveats

• Only for individuals – not couples

• No cohort effects

• Incorporate human capital

• Retirement income adequacy

• Still 60% unexplained variation