1.1 Introduction
Wealth differs widely across countries. It is six times higher than income in the US and shows similar values in several European countries, peaking at 700% of national income in Belgium (OECD data portal 2014). Wealth is a stock variable, which means that it is the sum of the flow of savings over the years and received bequest. In other words, considering that it is the sum of past choices, it is inevitably difficult to consistently change its value and particularly at an older age. For this reason, the importance of the pace of wealth accumulation at a young age is particularly important as little can be done to change the savings buffer stock when retirement approachesâwhich is when wealth is mostly needed. Lower saving rates over the years can generate enormous differences in the accumulation process. Given this feature, while it is reasonable to expect that people can change habits and become, for example, more parsimonious, it is unlikely that wealth level will be consistently impacted if the change in habit is not permanent.
The level of wealth is built up over the lifetime; very little can be done to reverse a wealth trend later in life. On the one side, the accumulation pattern over the lifetime, also known as saving propensity, will determine the amount of wealth a household can dispose of at retirement. On the other side, inheritance can give an important shape to wealth during oneâs lifetime, without depending on the saving attitude of a household. As highlighted by the recent work of Piketty (2014), inheritance of the baby boom generations, who have accumulated unprecedented levels of wealth, will pass to the next generation and shape the future social and economic equilibria. At the same time, self-made fortunes will also play an important role in this process (Kopczuk 2015).
In some countries, wealth prosperity is not aligned with GDP country rankings, showing divergence in performance. However, wealth is probably the best summary measure of potential income for the elderly, particularly if they cannot rely on generous pension systems like it has been the case in the past. Wealth can roughly represent future incomes available when divided by the expected remaining years in life, in the absence of other incomes.
In most countries, one of the main components of assets is housing equity. It has gained importance over recent decades, as easier and cheaper access to mortgage credit in the financial markets became available. Real estate is now fully recognized as one of the main drivers of economic fluctuations, as well as financial markets in economies with developed financial systems. Housing wealth accounts for almost half of net wealth in the UK, a little less in the US and more than 50% in most of the European countries (Muellbauer 2008). As a term of comparison, housing wealth is twice the size of pension wealth in the UK. Given the magnitude of wealth tied to (owner-occupied) housing wealth, home-owning households are inevitably exposed to fluctuations in real market prices.
As is discussed in Chap. 3, homeownership has increased steadily over the years and has now reached around 70% in European countries and the US (Angelini et al. 2013), with Germany and Switzerland being the only exceptions, where roughly 50% or less are homeowners. Homeownership represents the basis for a number of positive outcomes, not only social and economic, but also health outcomes, as well as civic and psychological attitudes among others.1
Focusing on the positive economic outcomes associated with owning your own home, changes in wealth are cited as the most important consequence of homeownership (Dietz and Haurin 2003), and homeownership is considered to be a good predictor of total wealth. Several studies have proven that this is actually the case, and a strong correlation exists between homeownership and wealth levels in the US, as well as in EU countries (Bricker et al. 2012; Sierminska 2012). We study this in more detail in Chap. 4.
For the majority of people, the capital tied up in their primary (and most of the time, only) residence constitutes their entire wealth. Housing is seen as a vehicle to accumulate assets as it fosters an orientation toward the future (Sherraden 1991) and can, as a result, turn into a higher rate of wealth accumulation than in the case of renting. Homeownership also generates an additional implicit commitment to save, which increases the wealth of homeowners, either because they are committed through a mortgage scheme or because they have a consistent amount of wealth tied into illiquid wealth. They cannot dispose of this wealth in the same way they could do were they renting and owning an equivalent asset. As a consequence, being a homeowner exacerbates the saving propensity. Homeownership could also have an impact on wealth inequality as well. This channel is investigated and has proven to be at work in a recent study by Kindermann and Kohls (2017).
In our book, we aim to investigate whether different types of households and the gender dimension are associated with different shapes of homeownership and wealth. If this is the case, this could potentially provide different profiles of wealth accumulation solely based on household composition. Why a look at gender in a discussion on wealth accumulation? A lot has been written on the participation of women in the labor market. Access to the labor market represents the first channel to increasing female participation in the society with an active role. Earning a salary in the market is the first step in the independence ladder. Labor market indicators and the gap between women and men in employment opportunities and salaries is the first measurement tool policy-makers look at when they assess female participation in economic life.
Without disregarding this fundamental step, we turn our focus to another understudied element of economic life: wealth. Wealth is a stock, and thus reflects the history of past events. If for young generations (net) wealth can be irrelevant or even negative, for households approaching retirement wealth can constitute a substantial amount of income. The importance of wealth, relative to income, is thus much stronger.
What drives wealth accumulation? What are the ingredients of wealth, and why should women differ from men in wealth formation?
When we...