World wealth gap
If only $2,200 makes you 'rich,' imagine the plight of the poor
Thomas Kostigen, MarketWatch
Last Update: 7:28 PM ET Dec 12, 2006
SANTA MONICA, Calif. (MarketWatch) -- The richest two percent of the world's population owns more than half of the world's household wealth.
Although you may believe you've heard this statistic before, you haven't: For the first time, personal wealth, not income, has been measured around the world. And the findings are surprising. For what makes people "wealthy" across the world spectrum is a relatively low bar.
The research finds that assets of just $2,200 per adult placed a household in the top half of the world's wealthiest. To be among the richest 10% of adults in the world just $61,000 in assets is needed. If you have more than $500,000, you're part of the richest 1%, the United Nations study found. Indeed, 37 million people now belong in that category.
Sure you can now be proud that you're rich. But take a moment to think about it and you'll probably come to realize the meaning behind these numbers is harrowing. For if it takes just a couple of thousand dollars to qualify as rich in this world, imagine what it means to be poor.
Half the world -- nearly three billion people -- live on less than two dollars a day. The three richest people in the world have more money than the poorest 48 nations -- combined.
Even relatively developed nations have low thresholds of per-person capital. For example, people in India have per capita assets of $1,100, and in Indonesia capital amounts to $1,400 per capita.
The study's authors defined net worth as the value of people's 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 well-being and economic success, and more broadly on economic development and growth," they say.
That said, it's interesting to take a look at how different economic levels manage their capital.
Property, particularly land and farm assets, are more important in less developed countries because of the greater importance of agriculture and because financial institutions are immature.
The study also reveals the differences in the types of financial assets owned. Savings accounts are strongly featured in transition economies and in some rich Asian countries, while stock and other types of financial products are more commonplace in Western nations. The authors say there is a stronger preference for saving and liquidity in Asian countries because of lack of confidence in financial markets. That isn't so much the case in the U.S. and the United Kingdom, which have private pensions and more developed financial markets, they say.
Debt doesn't weigh
Surprisingly, household debt is relatively unimportant in poor countries because, the study says, "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"
Meanwhile, "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."
But let's not feel too bad about ourselves, even if we do have a negative savings rate. The average wealth is the U.S. is $144,000 per person. In Japan, it's $181,000. Overall, wealth is mostly concentrated in North America, Europe and high income Asia-Pacific countries. People in these countries collectively hold almost 90% of total world wealth.
The world's total wealth is valuated at $125 trillion. And although North America has only 6% of the world adult population, it accounts for 34% of household wealth.
So be grateful for where you live in the world; it directly correlates to how much you have. But don't bask in superiority: The fastest-growing population of wealthy people is in China.
Look out when they transition from saving to spending. It's going to change the composition of the world economy dramatically, and it may just help prevent the world from becoming more of an aristocracy than it already is.
