201210 Global Wealth Report

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Research InstituteThought leadership from Credit Suisse Researchand the worlds foremost experts

October 2012

Global Wealth

Report 2012


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Contents03 Introduction

04 Global wealth overview

08 Household wealth: A global portrait

16 The global wealth pyramid

22 Household debt

31 Inheritance of wealth

38 What will the future bring?

45 Wealth of nations

46 United States

47 Japan

48 China

49 India

50 France

51 United Kingdom

52 Switzerland

53 Russia

54 Singapore

55 Korea

56 Indonesia

57 South Africa

58 Chile

59 Brazil

60 Australia

61 Canada

62 Authors

63 Disclaimer / Imprint

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.COM/CHRISHEPBURN,PHOTO:ISTOCKPHOTO.COM/COTESEB

ASTIEN

For more information, please contact:

Richard Kersley, Head of Global Research

Product, Credit Suisse Investment Banking,[email protected]

Michael OSullivan, Head of Portfolio

Strategy & Thematic Research,

Credit Suisse Private Banking

[email protected]

GLOBAL WEALTH REPORT 2012_2


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IntroductionThe Credit Suisse Global Wealth Report and the more detailedaccompanying Global Wealth Databook aim to provide the mostcomprehensive study of world wealth. Unlike other studies, theymeasure and analyze trends in wealth across nations, from thevery bottom of the wealth pyramid to ultra high net worthindividuals.

This third Wealth Report continues our close collaborationwith Professors Anthony Shorrocks and Jim Davies, recognizedauthorities on this topic, and the architects and principal authorsof Personal Wealth from a Global Perspective, OxfordUniversity Press, 2008.

The last two Wealth Reports painted a detailed picture of fast-rising wealth in the emerging world. This year in the context ofthe debate on the fiscal cliff and the Eurozone crisis, wechange tack and focus on indebtedness by bringing our uniquedata set of household debt to bear.

Using new wealth data, we review past trends in householddebt, and combine household and government debt to highlight

which countries have sustainable overal l debts levels and whichhave most problems with government debt.

Another new focus is inheritance, an important aspect ofwealth transfer. Sixty-nine percent of Forbes billionaires areself-made, with less than one-third having inherited their wealth,although if we exclude China, Russia and the other transitioncountries, this figure rises to slightly above one-third. Movingbeyond billionaires to look at all households in the OECD, thedata are not precise, but our work suggests that 30%50% oftheir wealth is inherited.

Overall, we estimate that global household wealth in mid-2012 totaled USD 223 trillion at current exchange rates,

equivalent to USD 49,000 per adult globally. Looking ahead, andassuming moderate and stable economic growth, we expect totalhousehold wealth to rise by almost 50% in the next five yearsfrom USD 223 trillion in 2012 to USD 330 trillion in 2017. Thenumber of millionaires worldwide is expected to increase byabout 18 million, reaching 46 million in 2017. We expect Chinato surpass Japan as the second wealthiest country in the world.However, the USA should remain on top of the wealth league,with USD 89 tril lion by 2017.

The Credit Suisse Global Wealth Report lays the foundationfor a long-running examination by the Credit Suisse ResearchInstitute of one of the crucial research areas in economics, anda vital driver of future megatrends. Moreover, it continues the

thought leadership and proprietary research undertaken by theResearch Institute over the past three years.

Hans-Ulrich Meister

Chief Executive Officer Credit Suisse Private Banking &Chief Executive Officer Credit Suisse Switzerland



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Changes to household wealth between

mid-2011 and mid-2012

The economic uncertainties of the past year par-ticularly those affecting Eurozone countries havecast a large shadow over household wealth. Eco-nomic recession in many countries, combined withwidespread equity price decl ines and relativelysubdued housing markets, has produced theworst environment for wealth creat ion since theoutbreak of the financial crisis. As a consequence,total global household wealth fell by 5.2% to USD223 trillion between mid-2011 and mid-2012, the

first annual decline since the financial crisis of20072008. However, prospects are not asgloomy as this result might suggest because theoverall drop is attributable to the appreciation ofthe US dollar. Based on constant exchange rates,aggregate global household wealth actually roseby about 1% over the last year not an impressiveperformance compared to recent years, but stillbetter than expected, given the challenging eco-nomic environment.

Europe was responsible for USD 10.9 trillion ofthe total global loss of USD 12.3 trillion (see Table1). Even with constant exchange rates, total house-

hold wealth in Europe fell by about USD 1 trillion.Asia-Pacific (excluding China and India) was theother big regional loser, shedding USD 1.3 trillionon the back of the dollar appreciation. Other lossesin Africa, India and the Latin American countries

were offset by modest gains in North America (USD

880 billion) and China (USD 560 billion), which had

a relatively quiet time compared with recent years inwhich wealth growth in China has averaged 13%per annum since 2000. The latest wealth estimatesindicate that by mid-2011, all regions (except

Africa) had fully recovered from the financial crisis;however, Europe and India have now dropped backbelow the level achieved in 2007.

Asset price changes

Financial assets and non-financial assets (e.g. realestate) contributed roughly equal amounts to the

decline in gross household wealth, and both com-ponents decreased in all regions of the world apartfrom North America and China. The percentagedecline in financial assets was especially prominentin India and Europe, although Africa and LatinAmerica also registered drops of roughly 10%. Insome respects, the situation could have been muchworse. In the 12 months to mid-2012, equity pricesin many regions of the world fell substantially rela-tive to their levels in mid-2011. The extent of thedecline is evident from the data displayed in Figure1, which shows that market capitalization fell in allthe G8 countries as well as in China and India, and

that the decline exceeded 10% in half of thesecountries. While Italy tops the list with a 23% drop,greater declines were experienced in Finland, Ban-gladesh, Austria, Romania, Spain and Israel. Mar-ket capitalization fell by more than 30% in Portugaland Ukraine, and by more than 40% in Argentina,

Global wealth

overviewThe Credit Suisse Global Wealth Report aims to provide the mostreliable and comprehensive data on global household wealth, coveringall components of wealth and spanning the entire wealth spectrum,from very wealthy individuals to the less well-off. Subdued economicgrowth and collapses in equity prices have made the past year achallenging one for wealth creation and preservation. In this chapter,

we review important aspects of the recent economic environment

and highlight some of the topics discussed later in the report.

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Table 1

Changes in household wealth in 20112012 by region

Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Datab ook 2012

Total net wealth Change in total net wealth Change in financial assets Change in non-financial assets

2012

USD bn

201112

USD bn

201112

%

201112

USD bn

201112

%

201112

USD bn

201112

%

Africa 2,393 -127 -5.0 -112 -8.1 -42 -3.0

Asia-Pacific 50,724 -1,311 -2.5 -298 -1.0 -938 -3.1

China 20,190 562 2.9 233 2.4 367 3.4

Europe 69,351 -10,882 -13.6 -6,237 -14.9 -6,480 -12.1

India 3,193 -699 -18.0 -139 -20.8 -586 -17.4

Latin America 8,696 -760 -8.0 -447 -10.4 -450 -6.9

North America 68,173 882 1.3 361 0.6 403 1.5

World 222,719 -12,336 -5.2 -6,640 -4.6 -7,728 -5.8


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Greece and Serbia. Relatively few countriesescaped reversals, although stock prices rose bymore than 15% in Thailand, Tunisia, Vietnam, Mex-ico and the Philippines, while Ireland reboundedfrom its recent setbacks with a robust rise of 88%.

House prices are another indicator (with a short

time lag) of household wealth, primarily of thenon-financial kind. In global terms, house priceshave been relatively flat, as suggested by thechanges recorded for nine countries in Figure 1,which are confined to a range between 6% and+6% (data for Russia are unavailable). Elsewhere,house prices rose by 8% in Poland and by 14% inAustr ia, while they declined by around 9% in Por-tugal and Taiwan, by 14% in Ireland, and by morethan 40% in Malaysia.

US dollar appreciation

The last major factor affecting global wealth com-parisons is the change in exchange rates versusthe US dollar, which declined almost everywherebetween mid-2011 and mid-2012. The 14%depreciation of the euro roughly equates to theworld average, although Brazi l, Hungary, India,Poland and Romania recorded declines greaterthan 20%. Canada and the United Kingdom man-aged to limit the depreciation to 6%, and China andJapan bucked the trend with a year-on-year appre-ciation of about 2.5%, although the yuan has beenon a downtrend since early 2012, which means

that the 12-month comparison for China may besomewhat misleading. Taken together, exchange

rate movements reduced US dollar-denominatedglobal wealth by about 6%, which explains the dif-ference between the 5% decline in aggregateglobal wealth denominated in current US dollarsand the 1% rise measured in constant dollars. Ofcourse, exchange rate movements have a more

noticeable impact on the relative position of indi-vidual countries in a global context.

Level and trends in household wealth

The impact of these asset price changes andexchange rate movements is examined in moredetail in the next chapter, which provides estimatesof the level and trend in total household wealth andits principal components across regions and coun-tries since the year 2000. Chapter 3 pays specialattention to the pattern of wealth holdings acrossthe adult population, as captured in the globalwealth pyramid, and summarizes year-on-yearchanges in the number of US dollar millionaires andtheir countries of residence.

Special topics for 2012

The report this year features a detailed review ofhousehold debt, covering G7 countries since the1980s and all countries in the world since the year2000. The analysis reveals many interesting find-ings that appear to have gone unnoticed. We alsoexamine the link between household debt and the

sovereign debt of countries. The other special topicin 2012 focuses on inherited wealth. It looks interalia at the degree to which evidence of inheritancevaries across wealth levels and over time, and howthe share of inherited and self-made wealth acrosscountries depends on factors such a savings rates,growth rates and life expectancy.

Looking ahead

Our research has established that by the middle of2011, household wealth in all regions (except

Africa) had fully recovered from the 200708 finan-cial crisis. The prospects for Europe look less brightbecause household wealth has suffered hits fromseveral quarters. Equity markets have been dismal,house prices have been stagnant, and depreciatingcurrencies have added to the overall gloom. Euro-zone countries, in particular, have tended to movedownwards in the wealth league tables, and resi-dents in these countries have tended to be replacedin the higher wealth groups. History suggests thatthe combination of equity price falls and currencydepreciation affecting Europe over the last year areunlikely to be repeated to the same extent this year;

but the overall wealth outlook remains neutral atbest, rather than positive. From a global viewpoint,it is the emerging market giants most especiallyChina which will continue to hold the key tohousehold wealth creation in the immediate future(as we outline in our chapter on forecasts).

Figure 1

Percentage change in market capitalization, house pricesand USD exchange rate, 20112012


50-5-10-15-20-25

United States

United Kingdom

Russia

Japan

Italy

India

Germany

France

China

Canada

House pr ices USD exchange rateMarket capitalization PHOTO:KEYSTONE/HERRGOTTRICARDO



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Household wealth:A global portraitWealth is one of the pillars of the economic system driving economicgrowth, the accumulation of capital, trends in consumption, asset prices,and specific industries such as healthcare and banking. Although the verytop wealth holders attract a great deal of attention, there is a shortage of

reliable data and research on the overall pattern of household wealth. Inthis chapter, we summarize the pattern of wealth ownership across regionsand countries, and analyze the core trends over time.



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The Credit Suisse Wealth Report aims to be thebest available source of information on global

household wealth, providing the most reliableresults and the most comprehensive coverage. Weassemble data on household wealth from a varietyof sources, and apply state-of-the-art techniquesto produce estimates of the level and pattern ofhousehold wealth across individual adults. Ouranalysis encompasses the whole spectrum ofwealth holdings from rich to poor across all coun-tries and regions. The more extensive Credit SuisseWealth Databook that accompanies this reportdescribes the methodology employed in greaterdetail. This chapter outlines some of the key resultsand trends related to wealth levels.

Trends in global wealth

We estimate that global household wealth in mid-2012 totaled USD 223 trillion based on currentexchange rates, equivalent to USD 49,000 per adult

in the world. Figure 1 shows that by the middle of2011, global wealth had recovered from the 2007

financial crisis; at that time, total wealth matched orexceeded the pre-crisis levels in all regions exceptAfrica. During the past year, economic uncertaintyand exchange rate movements have reduced USdollar-denominated aggregate wealth everywhereexcept North America and China, and this decline

was sufficient to return India and Europe below the2007 peak. While Europe remains the region withthe highest total wealth, its lead on North America isnow just USD 1.2 trillion, the smallest gap sinceEurope overtook North America in 2006.

Despite the setbacks in 2007 and more recently,household wealth has grown strongly over the past

decade, with the global aggregate doubling fromthe USD 113 trillion recorded at the start of themillennium. Even adjusting for the rise in the globalpopulation and for exchange rate fluctuations, networth has increased by 38% since the year 2000,equivalent to 2.7% growth per annum. The sepa-PH

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rate regional series displayed in Figure 2 based onconstant USD exchange rates reinforce the viewthat the underlying trends have been, and continueto be, broadly positive. They show that all regionsexcept Latin America experienced a downturn in200708, and that when exchange rate fluctua-

tions are ignored growth in wealth, both beforeand after the crisis, has been uniformly positive,apart from the period 200002 in North Americaand last year in Europe.

Global wealth by country

The figure for average global wealth masks theconsiderable variation across countries and regions(see Figure 3). The richest nations, with wealth peradult over USD 100,000, are found in North Amer-ica, Western Europe, and among the rich Asia-Pacific and Middle Eastern countries. They areheaded by Switzerland, which in 2011 became thefirst country in which average wealth exceededUSD 500,000. Exchange rate fluctuations havereduced its wealth per adult from USD 540,000 in2011 to USD 470,000 in 2012; but this stillremains considerably higher than the level in Aus-tralia (USD 350,000) and Norway (USD 330,000),which retain second and third places despite falls ofabout 10%. Close behind are a group of nationswith average wealth above USD 200,000, many ofwhich have experienced double-digit depreciationsagainst the US dollar, such as France, Sweden,

Belgium, Denmark and Italy. Countries in the groupwhich have not been adversely affected havemoved up the rankings most notably Japan tofourth place with wealth of USD 270,000 per adultand the USA to seventh place with USD 260,000per adult.

Interestingly, the ranking by median wealth isslightly different, favoring countries with lower lev-els of wealth inequality. As was the case last year,Austral ia (USD 195,000) tops the table by a con-siderable margin, with Japan, Italy, Belgium, andthe UK in the band from USD 110,000 to 140,000,

and Singapore and Switzerland with values aroundUSD 90,000. The USA lags far behind with medianwealth of just USD 55,000.

Intermediate wealth

In terms of wealth per adult, the set of richestcountries has been very stable. During the pastyear, only Greece has dipped below the USD100,000 threshold, although Spain and Cyprus areclose to demotion with average wealth of USD105,000 and USD 113,000 respectively. Greecejoins other European Union (EU) countries (Portu-

gal, Malta and Slovenia) at the top of the interme-diate wealth group, with mean wealth ranging fromUSD 25,000 to USD 100,000. Recent EU entrants(Czech Republic, Estonia and Slovakia) are foundlower down this band, but several others (Hungary,Poland, Lithuania and Romania) have been

Figure 1

Aggregate global wealth, 20002012


Figure 2

Total wealth 20002012 at constant exchange rates,

by region


250

200

150

100

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

USD trn

Africa India Latin America China Asia-Pacic EuropeNorth America

0

100 USD trn, log scale

10

Europe

1

North America $VLD3DFLF China Latin America India Africa

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012



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demoted during the past year. The intermediatewealth band also encompasses a number of MiddleEastern nations (Oman, Bahrain, Lebanon, andSaudi Arabia) and several Latin American countries

(Chile, Mexico, Uruguay and Costa Rica) consid-ered to be emerging markets. Colombia has beenpromoted to the group, but Brazil has moved in theopposite direction, together with its BRICS col-league, South Africa.

Frontier wealth

The frontier wealth range from USD 5,000 to25,000 per adult covers the largest number ofcountries and most of the heavily populated ones,including China, Russia, Indonesia, Brazil, Paki-

stan, Philippines, Turkey, Egypt and Iran. The bandalso contains many transition nations outside theEU (Albania, Armenia, Azerbaijan, Bosnia, Georgia,Serbia, Kazakhstan and Mongolia), most of LatinAmerica (Argentina, Ecuador, El Salvador, Panama,Paraguay, Peru and Venezuela), and many coun-tries bordering the Mediterranean (Algeria, Jordan,Libya, Morocco, Syria and Tunisia). South Africa isnow positioned alongside other leading sub-Saha-ran nations in this group: Botswana, EquatorialGuinea, Namibia and Swaziland.

The final category with wealth below USD 5,000remains heavily concentrated in Africa, although the

overall geographical composition shifted this year,when India dropped down to join other major Asiannations (Bangladesh, Cambodia, Laos, Nepal, SriLanka and Vietnam). Belarus, Moldova and Ukraineare three countries bordering the EU, which alsolanguish in the middle of this wealth range.

Figure 3

World wealth levels 2012

Source: James Davies, Rodrigo Lluberas and A nthony Shorrocks, Credit Suisse Global Wealth Databo ok 2012

Under USD 5,000

Wealth per adult (USD)

USD 5,000 to 25,000

USD 25,000 to 100,000

Over USD 100,000

No data

Wealth of regions

In mid-2012, Europe and North America had verysimilar shares of total household wealth, 31.1%

and 30.6% respectively. North America is theregion with the highest average wealth, butEuropes bigger population makes up the differ-ence. Figure 4 shows that the 23% share of wealthheld in Asia-Pacific countries (excluding China andIndia) is very close to the population share of theregion. Elsewhere, the disparity between popula-tion and wealth becomes increasingly apparent.Despite making enormous strides in recent years,Chinese residents account for 21.5% of the adultpopulation of the world, yet only 9.1% of globalwealth. In Latin America, the ratio is similar: 8.4%

to 3.9%; but in Africa and India, the populationshare exceeds the wealth share by a factor of ten.

Trends in wealth per adult and its

components

As Figure 5 shows, average household net worthtrended upwards from 2000 until the crisis in 2007,then fell by approximately 10% before recovering in2011 to slightly above the pre-crisis level. Furthersetbacks this year have pushed wealth per adultback below the previous peak. However, exchangerate movements account for much of the year-on-

year variation. Using constant USD exchange ratesyields a smoother time trend and a single signifi-cant downturn in 2008, after which point the recov-ery has continued more or less unabated.

The time series for the financial and nonfinan-cial components of wealth closely follow the pat-



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tern for net worth, and both have now returnedbelow the 2007 peak. At the start of the millen-nium, financial assets accounted for well over halfof the household portfolio, but the share declineduntil 2008, at which point the global wealth portfo-lio was equally split between financial and non-

financial assets (mostly property). In the periodsince 2008, the balance has again tipped slightlytowards financial assets.

On the liabilities side of the household balancesheet, average debt rose by 80% between 2000and 2007, and subsequently leveled out. It nowamounts to USD 8,600 per adult, about 7% lowerthan it was the same time a year ago. Expressed asa proportion of household assets, average debt hasmoved in a narrow range, rising over the period, butnever exploding.

The composition of household portfolios varieswidely and systematically across countries. Themost persistent feature is the rise in the relativeimportance of both financial assets and liabilitieswith the level of development. For instance, finan-cial assets account for 43.1% of gross assets inEurope and 67.1% in North America, but just15.9% of gross assets in India. Household debt asa percentage of gross assets is 16% in Europe and18.1% in North America, but only 3.7% in Indiaand 8.7% in Africa. There is also variation in port-folios unrelated to the level of development. Somedeveloped countries, like Italy, have unusually lowliabilities (10.0% of gross assets), while others

have surprisingly high debt, like Denmark (33.7%of gross assets). In addition, the mix of financialassets varies greatly, reflecting national differencesin financial structure. The share of equities in totalfinancial assets, for example, ranges from 43.4%in the USA, down to just 20.1% and 6.5% in Ger-many and Japan respectively.

Changes to household wealth from

mid-2011 to mid-2012

The adverse global economic climate and the USD

appreciation that occurred during the year untilmid-2012 meant that household wealth rose bymore than USD 100 billion in only four countries:the USA (USD 1.3 trillion), China (USD 560 bil-lion), Japan (USD 370 billion) and Colombia (USD100 billion). Figure 6 shows that Eurozone mem-bers suffered the largest losses, led by France(USD 2.2 trillion), Italy (USD 2.1 trillion), Germany(USD 1.9 trillion) and Spain (USD 870 billion).These losses were exacerbated by the unfavorableeuro-dollar exchange rate movement, but even ineuro terms, wealth declined by EUR 50 billion inGermany, EUR 148 billion in France, EUR 177 bil-

lion in Spain and EUR 286 billion in Italy. SizeableUSD wealth reductions were also recorded in theUK (USD 720 billion), India (USD 700 billion),Australia (USD 600 billion), Brazil (USD 530 bil-lion), Canada (USD 440 billion) and Switzerland(USD 410 billion).

Figure 4

Wealth and population by region, 2012


Figure 5

Global trends in wealth per adult and its components


50 3010 15 20 25

Europe

North America

$VLD3DFLF

China

Latin America

India

Africa

Share of total wealth in %Share of adult population in %

USD per adult50000

40000

30000

20000

10000

Financial wealth

0

Net worth at constant exchange ratesDebtNet worth1RQQDQFLDOZHDOWK

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Notes on concepts and methods: Net worth or wealth is defined as the value of financial assets

plus real assets (principally housing) owned by households, less their debts. This corresponds to the

balance sheet that a household might draw up, listing the items which are owned and their net value if

sold. Personal pension fund assets are included in principle, but not entitlements to state pensions.

Human capital is excluded altogether, along with assets and debts owned by the state (which cannoteasily be assigned to individuals).

For convenience, we disregard the relatively small amount of wealth owned by children on their own

account, and frame our results in terms of the global adult population, which totaled 4.6 billion in 2012.

The Asia-Pacific region excludes China and India, which are treated separately due to the size of their

populations.

Data for 2011 and 2012 refer to mid-year (end-June) estimates; the figures for earlier years indicate

year-end values.



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The largest percentage gains and losses generatea slightly different list. A steady USD exchangerate, combined with an 11% improvement in mar-ket capitalization, helped Colombia to top the coun-try rankings with a 16% rise in household wealth.Algeria, Hong Kong, Peru and Uruguay also

recorded gains of more than 5%. The downside ismore evident, especially in Eurozone countries,where double-digit losses were recorded every-where (see Figure 7). Other sizeable decl ines wererecorded for Russia (13%), Mexico (14%),South Africa (15%) and India (18%), while East-ern Europe had a very poor year, led by the CzechRepublic and Poland (both with 18%), Hungary(25%) and Romania (36%).

Distribution of wealth across individuals

If we are to understand how global wealth is spreadacross households and individuals rather thanregions or countries we need information on thedistribution of wealth within countries. For thisstudy, we combine data on the levels of householdwealth across countries and patterns of householdwealth within countries in order to estimate theglobal distribution of wealth.

Our estimates indicate that once debts havebeen subtracted, an adult requires only USD 3,700in assets to be in the wealthiest half of world citi-zens. However, a person needs at least USD71,000 to belong to the top 10% of global wealth

holders and USD 710,000 to be a member of thetop 1%. Taken together, the bottom half of theglobal population possess barely 1% of totalwealth, although wealth is growing fast for somemembers of this segment. In sharp contrast, therichest 10% own 86% of the worlds wealth, withthe top 1% alone accounting for 46% of globalassets.

Regional comparisons

The pattern of regional representation in global

wealth deciles (i.e. population tenths) is shown inFigure 8. The most striking feature is perhaps thecomparison between China and India. China hasvery few representatives at the bottom of the globalwealth distribut ion and relatively few at the top, butdominates the upper middle section, with 40% ofits population in deciles 69. The sizeable presenceof China in this section reflects not only its popula-tion size and its growing average wealth, but alsowealth inequali ty which, despite recent increases,remains modest by the standards of the developingworld. Chinas posit ion in the global picture hasshifted towards the right in the past decade due to

its strong record of growth, rising asset values, andcurrency appreciation. China now has more peoplein the top 10% of global wealth holders than anyother country except for the USA and Japan, hav-ing moved into third place in the rankings by over-taking Italy and Germany. In contrast, residents of

Figure 6

Change in total wealth 20112012: Biggest winnersand losers (USD bn)


Figure 7

Percentage change in total wealth 20112012:Biggest winners and losers


-2500 -2000 -1500 0-1000 -500 500 1000 1500 2000

Canada

Brazil

Australia

Spain

United States

United Kingdom

Colombia

Netherlands

Belgium

Sweden

Taiwan

Mexico

Switzerland

Japan

Italy

India

Germany

France

China

-40 -30 -20 0-10 10 20

Italy

Finland

Czech Republic

India

United States

Portugal

Colombia

Greece

France

Ireland

South Africa

Sweden

Japan

Hungary

Poland

Spain

Romania

Algeria

China



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India are heavily concentrated in the lower wealthstrata, accounting for a quarter of people in thebottom half of the distribution. However, its extremewealth inequality and immense population meansthat India also has a significant number of membersin the top wealth echelons.

As Figure 8 shows, residents of Asia-Pacificnations (excluding China and India) are fairly evenlyspread across the global wealth spectrum. How-ever, this uniformity masks a substantial degree ofpolarization. Members of high-income Asian coun-

tries, such as Japan, Singapore and Hong Kong,are heavily concentrated at the top end: half of alladults in high-income Asian countries are placed inthe top global wealth decile. In contrast, residentsof lower-income countries in Asia, such as Indone-sia, Bangladesh, Pakistan and Vietnam, tend to befound much lower down in the wealth distribution.In fact, when high-income countries are excludedfrom the Asia-Pacific group, the wealth patternwithin the remaining countries resembles that ofIndia, with both regional groupings contributingabout one quarter of the bottom half of wealthholders. Africa is even more concentrated at the

bottom end. Half of all African adults are found inthe bottom two global wealth deciles. At the sametime, wealth inequality within and across countriesin Africa is so high that some individuals are foundamong the top 10% of global wealth holders, andeven among the top 1%.

Latin America is another region whose wealth dis-tribution closely mimics the global pattern, withindividuals fairly evenly spread across the wealthdeciles. North America and Europe are skewedmuch more towards the high end, togetheraccounting for 60% of individuals in the top 10%,and an even higher percentage of the top percen-tile. Europe alone accounts for 36% of members ofthe top wealth decile, a proportion that rose consid-erably over the past decade as the euro appreci-ated against the US dollar, but has declined a little

during the past 12 months.

Year-on-year changes in membership of top

wealth decile by country

We estimate that more than six million residents inboth Japan and China joined the top global decile,along with around half a million new memberseach in Chile, Colombia and Hong Kong (seeTable 1). They displaced about six million mem-bers of the top decile who were domiciled in Ger-many, Italy and Spain, and nearly five million adultsresident in the major developing economies of

Brazil, South Africa, India, Mexico and Taiwan. Tobelong to the top percentile (i.e. top 1%) of theglobal wealth distribution required USD 710,000in mid-2012; hence, the pattern of residenceacross countries is expected to be similar to thatof millionaires. Our results indicate that almost

Figure 8

Regional composition of global wealth distribution 2012

Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Data book 2012

100%

40%

50%

60%

70%

80%

90%

30%

20%

10%

0%

Decile

1 2 3 4 5 6 7 8 9 10

$VLD3DFLF

India

China

Africa

Europe

Latin AmericaNorth America



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Adults (thousand) in global top 10% Adults (thousand) in global top 1%

Country 2011 2012 Change Country 2011 2012 Change

Japan 68,894 75,525 6,631 b USA 12,584 16,376 3,792China 28,950 34,996 6,046 b Japan 5,642 6,590 948

UK 28,453 29,321 868 b Chile 44 66 22

Chile 739 1,416 677 b Peru 10 28 18

Denmark 1,641 2,190 549 b Morocco 3 21 18

Colombia 1,331 1,846 515 b Colombia 60 75 15

Hong Kong 1,174 1,654 480 b Philippines 28 38 10

Korea 7,302 7,611 309 b UAE 65 70 5

Canada 13,315 13,621 306 b Hong Kong 133 138 5

Netherlands 5,727 6,010 283 b Thailand 26 30 4

Poland 1,551 1,334 -217 b Taiwan 553 404 -149

Taiwan 6,714 6,384 -330 b Spain 671 517 -154Israel 1,862 1,500 -362 b Brazil 507 352 -155

Mexico 5,651 5,221 -430 b Belgium 634 461 -173

India 4,138 3,616 -522 b Canada 1,603 1,428 -175

South Africa 2,449 1,586 -863 b Denmark 426 201 -225

Italy 32,184 30,684 -1,500 b Australia 1,861 1,571 -290

Germany 29,880 28,143 -1,737 b France 3,982 3,540 -442

Brazil 9,322 6,656 -2,666 b Germany 2,964 2,455 -509

Spain 16,361 13,640 -2,721 b Italy 2,778 2,073 -705

World 451,795 459,238 7,443 World 45,185 45,938 753

four million US residents moved into the top globalwealth percentile, together with nearly one millionJapanese. As expected, they replaced many resi-dents of Eurozone countries: Italy (-705,000),Germany (-509,000), France (-442,000), Bel-gium (-173,000) and Spain (-154,000). Australia,Denmark, Canada, Brazil and Taiwan betweenthem shed about another million members.

World wealth spectrum

Wealth is one of the key components of the eco-nomic system. It is valued as a source of financefor future consumption, especially in retirement,and for reducing vulnerability to shocks such asunemployment, ill health or natural disasters.Wealth also enhances opportunities for informalsector and entrepreneurial activities, when usedeither directly or as collateral for loans. These func-tions are less important in countries that have gen-erous state pensions, adequate social safety nets,good public healthcare, high quality public educa-tion and well-developed business finance. Con-versely, the need to acquire personal assets is par-

ticularly compelling and urgent in countries thathave rudimentary social insurance schemes andrestricted options for business finance, as is thecase in much of the developing world.

The Credit Suisse Wealth Report is designed toprovide a comprehensive portrait of world wealth,

Table 1

Winners and losers in the global wealth distribution

Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Databook 2012

covering all regions and countries, and all parts ofthe wealth spectrum from rich to poor. Despite adecade of negative real returns on equities, severalequity bear markets, and the collapse of housingbubbles, we find that total global wealth has dou-bled since 2000. Strong economic growth and ris-ing population levels in emerging nations are impor-tant drivers of this trend.

The list of top ten countries in the wealth-per-adult league table includes many smaller, dynamiceconomies Switzerland, Norway, Luxembourg,

Singapore and Sweden as well as Australia andG7 members, Japan, France, the USA and the UK.Notable cases of emerging wealth are found inChile, Columbia, the Czech Republic, Lebanon, Slo-venia and Uruguay, while frontier wealth is evidentin Egypt, Indonesia, Malaysia, Tunisia and Vietnam.

For a number of reasons, wealth varies greatlyacross individuals. Our estimates suggest that thelower half of the global population owns barely 1%of global wealth, while the richest 10% of adultsown 86% of all wealth, and the top 1% accountfor 46% of the total. Over time, this may change,particularly if enough low-wealth countries experi-

ence rapid growth, and if China and India fulfilltheir potential to be major catalysts of global meta-morphosis. However, any trend towards equaliza-tion is likely to be slow. In the next section, we lookat the pattern of wealth holdings across individualsin more detail.



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The global

wealth pyramidThis chapter looks in more detail at the pattern of wealth ownership across alladults in the world, through the lens of the wealth pyramid. This allows us toanalyze not only the top echelons of wealth holders, but also the middle andbottom sections of the wealth pyramid, which other studies tend to ignore.

Many factors contribute to the disparity in personalwealth across individuals. At one end of the spec-trum, there are individuals at early stages of their

career who have had little chance and little motiva-tion to accumulate assets, those who have sufferedbusiness setbacks or personal misfortunes, andthose who simply live in parts of the world whereopportunities for wealth creation are severely lim-ited. At the other end of the spectrum, there areindividuals who have acquired a large fortunethrough a combination of talent, hard work or sim-ply being in the right place at the right time.

The wealth pyramid

The wealth pyramid shown in Figure 1 capturesthese wealth differences in striking detail. It has alarge base of low wealth holders, with the uppertiers occupied by progressively fewer people. Thepyramid data are derived from our estimates formid-2012 and it thus provides a snapshot of thewealth pattern across the adult populat ion. Whilethe overall features tend to change slowly overtime, the various strata are very fluid, and the indi-vidual occupants are highly mobile, seldom remain-ing in the same place over the course of their life-time. For this reason, while the top stratum of thepyramid remains the principal driver of private asset

flows and investment trends, the emerging wealthholders in the middle and base segments are rightlyseen as sources of great dynamism, triggering newtrends in consumption and industrial change.

In 2012, we estimate that 3.2 billion individuals more than two-thirds of the global adult popula-

tion have wealth below USD 10,000, and a fur-ther one billion (23% of the adult population) areplaced in the USD 10,000100,000 range. While

the average wealth holding is modest in the baseand middle segments of the pyramid, total wealthamounts to USD 39 trillion, underlining the poten-tial for new consumer trends products and for thedevelopment of financial services targeted at thisoften neglected segment.

The remaining 373 million adults (8% of theworld) have assets exceeding USD 100,000. Thisincludes 29 million US dollar millionaires, a groupwhich contains less than 1% of the worlds adultpopulation, yet collectively owns nearly 40% ofglobal household wealth. Amongst this group, we

estimate that 84,500 individuals are worth morethan USD 50 million, and 29,000 are worth overUSD 100 million.

The composition of the wealth pyramid in 2012is broadly similar to that of the previous year, exceptfor the fact that the overall reduction in total wealthincreases the percentage of adults in the base levelfrom 67.6% to 69.3% and reduces the relevantpopulation share higher up the pyramid by a corre-sponding amount. The respective wealth shares arevirtually unchanged.

The base of the pyramid

The various strata of the wealth pyramid have dis-tinctive characteristics. Although members of thebase level are spread widely across all regions, rep-resentation in India and Africa is disproportionatelyhigh, while Europe and North America are corre- PH

OTO:KEYSTONE/IMAGEBR

OKER/FLORIANKOPP



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spondingly underrepresented (see Figure 2). Thebase tier has the most even distribution acrossregions and countries, but it is also the most het-erogeneous, spanning a wide range of family cir-

cumstances. In developed countries, only about30% of the population fall into this category, andfor most of these individuals, membership is a tran-sient or life cycle phenomenon associated withyouth, old age, or periods of unemployment. Incontrast, more than 90% of the adult population inIndia and Africa are located within this band. Inmany low-income African countries, the percent-age of the population is close to 100%. Thus, formany residents of low-income countries, lifetimemembership of the base tier is the norm rather thanthe exception. However, lower living costs mean

that the upper limit of USD 10,000 is often suffi-cient to assure a reasonable standard of living.While bottom-of-the-pyramid countries have

limited wealth, it often grows at a fast pace. InIndia, for example, wealth is skewed towards thebottom of the wealth pyramid, yet it has tripledsince 2000. Indonesia has also seen dramaticgrowth, and aggregate wealth in Latin America isnow USD 8.7 trillion, compared to USD 3.4 trillionin 2000. In contrast, while North Americans domi-nate the top of the wealth pyramid, wealth in theUSA has grown more modestly, from USD 39.5trillion in 2000 to USD 62 trillion today.

Middle class wealth

The one billion adults located in the USD 10,000100,000 range are the middle class in the globaldistribution of wealth. The average wealth holding

is close to the global average for all wealth levels,and the total wealth of USD 32 trillion gives thissegment considerable economic weight. Theregional composition of this tier most closely cor-

responds to the global pattern, although India andAfrica are underrepresented. The compar ison ofChina and India is particularly interesting. India ishost to just 3% of the global middle class, and theshare has been relatively stagnant in recent years.In contrast, Chinas share has been growing fastand now accounts for over one-third of members,ten times higher than Indias.

High wealth segment of the pyramid

The regional composition changes significantly

when it comes to the 373 million adults worldwidewho make up the high segment of the wealthpyramid those with a net worth above USD100,000. North America, Europe and the Asia-Pacific region together account for 89% of theglobal membership of this group, with Europe alonehome to 141 million members (38% of the total).This compares with about 2.4 million adult mem-bers in India (0.6% of the global total) and a similarnumber in Africa.

The number of people in a given country withwealth above USD 100,000 depends on three fac-tors: population size, the average wealth level, and

wealth inequali ty within the country concerned. In2012, only 15 countries have more than 1% of theglobal membership. The USA leads with 21% ofthe total. In this instance, the three factors rein-force each other: a large population, combined withhigh mean wealth and an unequal wealth distribu-

USD 87.5 trn (39.3%)

29 m(0.6%)

344 m(7.5%)

1,035 m(22.5%)

3,184 m

(69.3%)

Number of adults (percent of world population)

Wealth range

Total wealth

(percent of world)

USD 95.9 trn (43.1%)

USD 32.1 trn (14.4%)

USD 7.3 trn (3.3%)

> USD 1 m

USD 100,000 to 1 m

USD 10,000 to 100,000

< USD 10,000

Figure 1

The global wealth pyramid

Source: James Davies, Rodrigo Lluberas and

Anthony Shorrocks, Credi t Suisse Global Wealth

Databook 2012



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tion. Japan is a strong second and is currently theonly country that challenges the hegemony of theUSA in the top wealth-holder rankings. Although itsrelative position has declined over the past coupleof decades due to the lackluster performance of itsequity and housing markets, Japan has 18% of

individuals with wealth above USD 100,000, acouple of points more than a year ago.

The most populous EU countries Italy, theUK, Germany, and France each contribute6%8% to the high wealth segment, and eachcountry has experienced a small decline in itsmembership share during the year. For manyyears, these countries have occupied positionsthree to six in the global rankings, but this yearChina edged France out of sixth place, a dramaticimprovement from the situation in 2000, whenChinas representation in the top wealth groupswas too small to register. Brazil, Korea and Taiwanare other emerging market economies with atleast four million residents with a net worth aboveUSD 100,000. Mexico accounted for more than1% of the group in 2011, but has dropped belowthis benchmark th is year.

Top of the pyramid

A different pattern of membership is again evidentamong the worlds millionaires at the top of thepyramid (see Figure 3). Compared to individualswith wealth above USD 100,000, the proportion of

members from the United States almost doubles to39%, and the shares of most of the other coun-tries move downwards. There are exceptions,however. France moves up to third place in therankings, and Sweden and Switzerland both jointhe group of countries with more than 1% of globalmillionaires.

Changing membership of the millionaire

group

Changes to wealth levels since mid-2011 have

affected the pattern of wealth distribution. Theoverall decline in average wealth has raised theproportion of adults with wealth below USD10,000 from 67.6% in mid-2011 to 69.3% inmid-2012, and reduced the number of millionairesby slightly more than one million (see Table 1).There were 962,000 new millionaires in the UnitedStates and 460,000 in Japan, but no significantincrease in numbers elsewhere. However, Europeshed almost 1.8 million US dollar millionaires, mostnotably in Italy (374,000), France (322,000),Germany (290,000), Denmark (179,000),Sweden (142,000) and Spain (87,000). Austra-

lia, Canada, Brazil and Taiwan are the other coun-tries in the group of the top ten losers. The losseswere sufficient to drop Brazil, Denmark and Taiwan(along with Belgium) from the list of countries withmore than 1% of the total number of millionairesworldwide.

Figure 3

Dollar millionaires by country of residence


Figure 2

Regional membership of global wealth strata


0 10 20 30 40 50 60 70 80 90 100Percentage of wealth group in region

> USD 1 million

USD 100,000to 1 million

USD 10,000to 100,000

< USD 10,000

All levels

India Africa China Europe North America$VLD3DFLF Latin America

USA39%

Japan 13%

Netherlands 1%

Spain 1%

Sweden 1%

Switzerland 2%

Canada 3%

Australia 3%

China 3%

Italy 4%

Germany5%

UK6%

France 8%

Rest of world 11%



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High net worth individuals

To estimate the pattern of wealth holdings aboveUSD 1 million requires a high degree of ingenuitybecause at high wealth levels, the usual sources ofwealth data official statistics and sample surveys

become increasingly incomplete and unreliable.We overcome this deficiency by exploiting well-known statistical regularities in the upper parts ofthe wealth distribution to ensure that the top wealthtail is consistent with the annual Forbes tally ofglobal billionaires and similar rich list data pub-lished elsewhere. This produces plausible esti-mates of the global pattern of asset holdings in thehigh net worth (HNW) category from USD 1 millionto USD 50 million, and in the ultra high net worth(UHNW) range from USD 50 million upwards.

While the base of the wealth pyramid is occu-pied by people from all countries of the world atvarious stages of their life cycles, HNW and UHNWindividuals are heavily concentrated in particularregions and countries, and tend to share a similarlifestyle, participating in the same global marketsfor high coupon consumption items, even whenthey reside on different continents. The wealthportfolios of individuals are also likely to be similar,dominated by financial assets and, in particular,equity holdings in public companies traded in inter-national markets. For these reasons, using officialexchange rates to value assets is more appropriatethan using local price levels.

We estimate that there were 28.5 million HNWindividuals with wealth between USD 1 million andUSD 50 million in mid-2012, of whom the vastmajority (25.6 million) fall in the USD 15 millionrange (see Figure 4). One year ago, Europe over-took North America as the region with the greatestnumber of HNW individuals, but tradition has been

Main winners Main losers

Country Adults (thousand) with wealth

above USD 1 m

Country Adults (thousand) with wealth

above USD 1 m

2011 2012 Change 2011 2012 Change

USA 10,061 11,023 962 Italy 1,544 1,170 -374

Japan 3,121 3,581 460 France 2,606 2,284 -322

Peru 4 18 14 Germany 1,753 1,463 -290

Chile 28 42 14 Denmark 296 117 -179

Morocco 1 14 13 Australia 1,079 905 -174

Colombia 37 46 9 Sweden 485 343 -142

Philippines 18 25 7 Canada 940 842 -98

Thailand 17 20 3 Brazil 319 227 -92

UAE 40 43 3 Taiwan 343 253 -90

Hong Kong 89 92 3 Spain 400 313 -87

World 29,674 28,640 -1,034 World 29,674 28,640 -1,034

Table 1

Changes in the number of millionaires by country, 20112012


restored this year, with 11.8 million residents (42%of the total) in North America and 9.2 million (32%)in Europe. Asia-Pacific countries excluding Chinaand India have 5.7 million members (20%), and weestimate that there are currently a fraction underone million HNW individuals in China (3.4% of the

global total). The remaining 753,000 HNW indi-viduals (2.6% of the total) reside in India, Africa orLatin America.

Ultra high net worth individuals

Our estimates suggest that worldwide there are84,500 UHNW individuals, defined here as those

with net assets exceeding USD 50 million. Of these,29,300 are worth at least USD 100 million and2,700 have assets above USD 500 million. North

America dominates the regional rankings, with40,000 UHNW residents (47%), while Europe has22,000 individuals (26%), and 12,800 (15%) residein Asia-Pacific countries, excluding China and India.

In terms of individual countries, the USA leadsby a huge margin with 37,950 UHNW individuals,equivalent to 45% of the group (see Figure 5). Therecent fortunes created in China have propelled itinto second place with 4,700 representatives(5.6% of the global total), followed by Germany(4,000), Japan (3,400), the United Kingdom(3,200) and Switzerland (3,050). Numbers in otherBRIC countries are also rising fast, with 1,950members in Russia, 1,550 in India and 1,500 in

Brazil, and strong showings are evident in Taiwan(1,200), Hong Kong (1,100) and Turkey (1,000).

Although there is very little comparable data onthe past, it is almost certain that the number ofUHNW individuals is considerably greater than it wasa decade ago. The overall growth in asset valuesaccounts for part of the increase, together with the



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appreciation of currencies against the US dollar overmuch of the period. However, it also appears that,notwithstanding the credit crisis and the more recentsetbacks, the past decade has been especially con-ducive to the establishment of large fortunes.

Changing fortunes

Wealth is often seen in terms of a pyramid, withmillionaires on top and poorer people at the base.Many commentaries on wealth focus exclusively onthe top part of the pyramid, which is unfortunatebecause the middle and base segments accountfor about USD 40 trillion of global householdwealth, and satisfying the needs of the owners ofthese assets is likely to drive new trends in con-sumption, industry and finance. Wealth mobilityover time also means that many of the future suc-cessful entrepreneurs and investors are currentlylocated in the lower wealth strata. China, Taiwan,Korea, and Brazil are countries that are already ris-ing quickly through this part of the wealth pyramid,with Indonesia close behind and India growing fastfrom a low starting point.

At the same time, the ultra wealthy top-of-the-pyramid segment will continue to be the strongdriver of private asset flows and investment trends.Our figures for mid-2012 indicate that there arenearly 30 million HNW individuals, with almost onemillion located in China and 5.7 million residing inAsia-Pacific countries other than China and India.

At the top of the pyramid, there are 84,500UHNW individuals with net worth exceeding USD50 million. The recent fortunes created in Chinalead us to estimate that 4,700 Chinese individuals(5.6% of the global total) now belong to the UHNWgroup, together with a similar number in Russia,India and Brazil (taken together).

Figure 4

The apex of the pyramid


Figure 5

Ultra high net worth individuals 2012: Selected countries


84,500

928,000

1,921,000

25,613,500

Wealth

range

Number

of adults

> USD 50 m

USD 10 to 50 m

USD 5 to 10 m

USD 1 to 5 m

0 5000 10000 15000 20000 25000 30000 35000 40000

Indonesia

Korea

Hong Kong

Turkey

Taiwan

Brazil

Russia

India

Australia

Italy

Canada

United Kingdom

France

Switzerland

Japan

Germany

China

USA

USD 50 m 100 m

USD 100 m 500 mUSD 500 m 1 bn

> USD 1 bn



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Household

debtThe aftermath of the credit crisis andthe ongoing Eurozone crisis have seenrising levels of government debt, as wellas an intense interest in this by markets.This chapter brings an important relatedelement household debt into focus.Using new wealth data, we review past

trends in household debt and combinehousehold and government debt tohighlight countries that have sustainableoverall debt levels and those with thegreatest sovereign debt problems.

Global trends in household debt

Rising household debt has been one of the mostenduring and widespread economic trends of thepast 30 years. Evidence for G7 countries suggeststhat this phenomenon began around 1975. Beforethis date, the ratio of household debt to annual dis-posable income within countries remained fairly sta-ble over time and rarely rose above 75%. By theyear 2000, household debt in Canada, Germany, the

UK and the USA was equivalent to at least 12months income, and in Japan it equated to 15months income (see Figure 1). Household debt inFrance and Italy started from a much lower base, butthe gap narrowed considerably between 1980 and2000, with the debt to income ratio approximatelydoubling in France and rising even faster in Italy.

In most G7 countries, these trends continueduntil the financial crisis, and then moderated orreversed. When the debt to income ratio peaked, itwas two times higher than the level in the early1980s in Canada, France and the USA, it wasthree times higher than the earlier level in the UK,

and ten times higher in Italy. In contrast, the debt-income ratio in Japan has been fairly flat since1990 and around 2000, it even began to declineslightly in Germany and Japan. While the financialcrisis prompted major debt reductions in the UKand the USA after 2007, the trend towards greater

indebtedness has carried on regardless in Canadaand Italy. Given its history and reputation for pru-dent economic policies, it is worth noting that Can-ada currently has the highest household debt-income ratio among G7 countries.

Estimates of household debt are available for allcountries since the year 2000. Our calculationssuggest that the recent experience of G7 countrieswas widely repl icated elsewhere. Adjusted forexchange rate fluctuations, total global householddebt grew by 8% per annum in 200007, and then

flattened out (see Figure 2). For the entire period200012, aggregate debt rose by 81%, equivalentto 5% growth per annum. A rising global populationaccounts for part of the increase: debt per adultgrew just 45% for the entire period. Currencyappreciation against the US dollar has tended to

Debtors prison

by Hogarth,

18th century

PHOTO:KEYSTONE/SCIENCE

PHOTOLIBRARYSPL

CHEMICALHERITAGEFOUND

ATION



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Figure 1

Household debt-income ratio in G7 countries, 19602011


operate in the opposite direction. With prevailingexchange rates, total household debt more thandoubled before the financial crisis, rising from USD18.8 trillion in 2000 to 38.8 trill ion in 2007, beforeflattening out. The current level is USD 39.4 trillion.

Regional patterns of household debt

The regional composition of household debt isdominated by North America, Europe and Asia-Pacific countries (excluding China and India), which

together account for 94% of the global total. LatinAmerica and Africa, along with China and India,have low levels of aggregate debt and rank evenlower in terms of debt per adult. For example, in2012, the average figure is USD 427 for Africaand USD 162 for India compared to USD 57,063

2.0

1.5

1.0

0.5

France

0.0

ItalyGermanyCanada Japan UK USA

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010


24/64

Figure 2

Global household debt, 20002012, base year 2000


Figure 3

Debt per adult, constant exchange rate, base year 2000


for North America. However, the pattern is slowlychanging. Based on constant exchange rates, debtper adult grew by 150% in China and Africabetween 2000 and 2012, by 200% in Latin Amer-ica, and by almost 250% in India, compared to45% for the world as a whole and just 7% for the

Asia-Pacific region (see Figure 3).

Household debt per adult in developed

economies

Average debt per adult shows even greater varia-tion across countries than average income or aver-age wealth. The highest levels of debt per adult arefound in developed countries with well functioninginstitutions and sophisticated credit markets.Based on average USD exchange rates since2000, Denmark, Norway and Switzerland top theleague table for household debt per adult in 2012,with values above USD 100,000 (see Figure 4).This is roughly twice the level seen in Canada,Sweden, the USA, the UK and Singapore, with Ire-land and the Netherlands sitting between the twogroups. By these standards, the average debt peradult in Spain (USD 31,200), Portugal (USD25,800), Italy (USD 23,900) and Greece (USD19,000) looks quite modest.

Figure 4 shows that average debt per adultincreased during 200007 in all the high debt coun-tries apart from Germany, where average debt hasbeen flat, and Japan, where household debt has

declined possibly due in part to the ageing popula-tion, given the negative relationship between debtand age. Countries with the highest debt per adultshowed little tendency towards debt reduction in theaftermath of the financial crisis: Ireland, the USAand Hong Kong are the main exceptions. Apart fromGermany and Japan, only Hong Kong and Singa-pore have debt levels in 2012 which are close to thelevels recorded at the start of the millennium.

Debt in proportion to wealth

Expressed as a fraction of net worth, householdGHEWLVW\SLFDOO\RIZHDOWKLQDGYDQFHGeconomies, but much higher levels are sometimesrecorded, for example in Ireland (44%), the Neth-erlands (45%) and Denmark (51%). The reasonslie with both the numerator and the denominator inthe ratio of debt to assets. Countries that have astrong welfare state with generous public pensionsprovide less of a stimulus for households to accu-mulate financial assets. Public housing has a simi-lar effect on the non-financial side, although itsshare of the total housing stock has been decliningin most countries in recent decades, which makes

this argument less compelling. Nevertheless, inScandinavia and elsewhere, these forces make thedebt to assets ratio higher by depressing thedenominator. Sophisticated financial institutionsand easy access to credit are further reasons whydebt is sometimes high. The impact of government

220

200

180

160

140

120

100

Total debt, current exchange rate

80

Debt per adult, current exchange rateTotal debt, constant exchange rate Debt per adult, constant exchange rateDebt as percent of net wealth

2000 2001

Index (base year 2000)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

350

300

250

200

150

100

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Latin America ChinaAfricaIndia$VLD3DFLF

Europe North America World




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policies can also be seen, for instance in high levelsof student debt accompanied by a relaxed schedulefor student debt repayment. Taking all of these fac-tors into consideration, it is not so surprising thatdebt can amount to one-third of gross assets andhence one half of net assets in a country like

Denmark.The burden attached to the rise in household

debt needs to be evaluated in the context of thesubstantial increase in personal wealth during thepast decade. Despite the rise in wealth, in mostcountries where household debt exceeds USD 1trillion, the ratio of debt to net worth rose on aver-age by about 50% during the period 200008 (seeFigure 5). Debt in the USA increased from 18.7%of net worth in 2000 to peak at 30.5% in 2008before falling back to 21.7% in 2011. The UKexhibited a very similar pattern, with the debt ratioclimbing from 15.2% to 23.4% between 2000 and2008, subsequently dropping to 20% in 2012.Therise in the debt-wealth ratio was even more pre-cipitous in the Netherlands and Spain, and althoughthe increase abated slightly to 71% in the Nether-lands, no reduction is evident in Spain, whose ratiois now 90% higher than it was in 2000.

Debt growth was also high in Italy, but startedfrom a much lower base, with the result that thedebt-wealth ratio of 11.1% in 2012 is not just thelowest among the countries shown in Figure 5, butalso below the average for the world as a whole,

which is 17.7%. France (12.8%), Germany (16.4%)

and Japan (16.6%) have now also fallen below theglobal average, with wealth in France growingrobustly enough to reduce the debt ratio by about10% during the past decade, and Germany manag-ing to reduce the ratio by one-third, from 24.3% in2000 to 16.4% in 2012. Singapore almost matchedGermanys performance in reducing the debt bur-den. Our estimates indicate that Malaysia and thePhilippines may have done even better, although thedata for these countries are less reliable.

Household debt in developing and transition

countries

Because personal debt is often a sensitive issue,collecting data on debt poses special difficulties forhousehold surveys. This, together with the greaterprevalence of informal debt, may help explain whymeasured household debt is typically low in devel-oping countries less than 10% of net assetsoverall. But immature financial markets (and weakproperty rights) also mean that household demandfor credit is often not satisfied. In addition, demandfor credit may be constrained by the fact that evensmall amounts of debt can be a considerable bur-

den for the very poor in developing countries, espe-cially when usurious interest rates are charged.

In the developing world, the absolute level ofdebt is seldom more than USD 1,000 per adult, butexceptionally high levels above USD 5,000 peradult are evident in Brazil, Chile and South Africa

Figure 5

Trends in debt-wealth ratio


Figure 4

Countries with high debt per adult


200

180

160

140

120

100

80

602000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Netherlands AustraliaItalySpainFrance Japan Germany

Canada United KingdomUnited States


20000 40000 60000 80000 100000 1200000

Denmark

Norway

SwitzerlandNetherlands

Australia

Ireland

United States

Sweden

United Kingdom

Canada

Hong Kong

Singapore

Japan

France

SpainGermany

Portugal

Italy

Greece

World

Debt per adult in USD using constant country exchange rates

201220072000



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(see Figure 6). Similar levels of household debt arealso associated with transition countries that haveentered the European Union (EU), such as theCzech Republic, Hungary, Poland, Romania andSlovakia, as well as some that have not, such asUkraine. At the bottom of the range, we estimate

average debt to be below USD 300 in Indonesia,and around USD 200 in India and Vietnam. China(about USD 600) and Russia (about USD 1,300)are examples of intermediate countries.

Low absolute levels of debt make it sometimesappear that developing countries have escaped thetrend towards rising household debt in recent years.Exactly the opposite is true. Our estimates suggestthat Malaysia and the Philippines are the only twodeveloping countries for which debt per adult islikely to have grown less than the global average of45% during 200012 (see Figure 7). Debt peradult more than doubled in Argentina, the CzechRepublic, Mexico, Morocco and Uruguay, and morethan trebled in Chile, Colombia, India and SouthAfrica. In Indonesia and Slovakia, average debt roseby a factor of five, and in Hungary, Poland, Turkeyand Vietnam by a factor of eight. But the biggestchanges were recorded in other transition countries:Russia, where average debt increased by a factorof 20 between 2000 and 2007; and Romania andUkraine, where average debt has seen a fiftyfoldincrease since 2000 (see Figure 7).

Are household debt levels sustainable?

The fact that the wealthiest and most economicallysuccessful countries tend to have relatively highlevels of household debt suggests that debt is botha blessing and a curse. The problem is understand-ing how much household debt is needed to oil thewheels of economic progress without precipi tatingthe crises of confidence seen recently in severalEuropean nations. Table 1 attempts to cast somelight on this issue based on the cross-classificationof countries according to their debt-wealth ratioand growth in debt per adult.

Several patterns are evident. First, high-incomeeconomies congregate in the upper left section ofthe table: in other words, they tend to have mediumor high levels of household debt relative to assets,and low to medium debt growth in recent years. TheNordic region is firmly located within the high debt-medium debt growth category, and the Asian Tigersare typically located in the medium debt-low debtgrowth section, with Korea an outlier in this respect.The four upper left cells contain all of the G7 coun-tries but, interestingly, no nation from Latin America.

A second feature is the high growth in debt wit-nessed in most transition countries in recent years.

This is not surprising given the lack of investmentopportunities and credit and mortgage facilities inthe pre-reform era. What is perhaps unexpected isthe speed at which Hungary, Poland, Slovakia andUkraine have joined the group of countries forwhich household debt exceeds 20% of net worth.

Figure 6

Average debt in developing countries


Figure 7

Trends in debt-wealth ratio for transition countries


1000 2000 3000 4000 5000 6000 70000

Debt per adult in USD using constant country exchange rates

Philippines

India

Vietnam

Indonesia

Egypt

China

Argentina

Thailand

Mexico

Turkey

Colombia

Uruguay

Malaysia

South Africa

Brazil

Chile

2012

20072000

10000 Logarithmic scale, base year 2000

1000

Romania

100

Ukraine RussiaCzech Republic China World

Hungary Poland Vietnam Slovakia

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012



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Many Eastern European countries experienced adebt-financed housing boom in the post-reformera, which, when it went into reverse, meant thatlower levels of property assets were supportinghigh levels of mortgage debt. Also, in the high debtratio-high debt growth category are two of the

emerging market leaders Brazil and South Africa with Russia close by.

The cross-classification in Table 1 is too simplis-tic to provide a solid basis for policy lessons. Nev-ertheless, a high ratio of debt to net worth is notitself a negative signal for a country. Indeed, it isclose to being a prerequisite for economic success.What is problematic is the speedy growth in house-hold debt. It is worth noting that Greece, Hungaryand the United Arab Emirates all appear in theupper right-hand section and all have made head-lines in recent years with regard to debt problems.While these headline issues have not been directlylinked to household borrowing, the high speed atwhich household debt has grown is perhaps indica-tive of a relaxed credit culture that can have furtherrepercussions.

The household burden of government debt

The recent concern over debt sustainability hasfocused almost exclusively on sovereign debt and thevulnerability of the banking sector. Yet the degree to

which governments can finance external debt intimes of difficulty depends in part on the net assets

of the household sector. More importantly, whenconsidering whether their assets are sufficient tomeet future consumption needs and emergencies,households should take account of the debt that gov-ernments are accumulating on their behalf. We have

Growth in debt per adult, 20002012

< 5% p.a. 5%10% p.a. > 10% p.a.

Debt-wealth

ratio 2012

High

> 20%

Hong Kong b Australia Netherlands Brazil Poland

Luxembourg b Canada New Zealand Greece Slovakia

Portugal b Denmark Norway Hungary South Africa

Switzerland b Finland Spain Korea Ukraine

USA b Ireland Sweden United Arab Emirates

Medium

10%20%

Austria Malaysia Belgium b Chile b

France Saudi Arabia Czech Republic b Romania b

Germany Singapore Italy b Russia b

Israel Taiwan Kuwait b b b

Japan Thailand UK b b b

Low

< 10%

Egypt b Argentina Morocco Algeria Pakistan

Peru b China Tunisia Bangladesh Qatar

Philippines b Mexico Uruguay Colombia Serbia

b b b b India Turkey

b b b b Indonesia Vietnam

b b b b Iran b

assembled data on government financial assets anddebt for 26 countries for the period 200011.

Although these data exclude off-balance sheet itemssuch as non-funded state pensions, they neverthe-less provide some indication of the net liabilities ofgovernments, how these compare with household

net worth, and how the position has changed overtime, particularly after the financial crisis.

The overall situation is summarized in Figure 8.In almost all countries, government liabilitiesexceeded government financial assets in 2011,leaving the government a net debtor. However, thegovernments of Bulgaria, Finland and Sweden areall net creditors, and Norways stabilization fundgives it a huge surplus, amounting to USD 199,000per adult in 2011, equivalent to 15 times the netfinancial assets of households. The fact that Nordiccountries have a high level of household debt is oneof the reasons why government debt tends to benegatively correlated with household debt (seeFigure 9). Denmark, for example, has the highesthousehold debt to wealth ratio in the world, yet netgovernment debt amounts to just 3% of the netfinancial wealth of households. In contrast, Japanhas moderate household debt, but this is offset bynet government debt of USD 77,000 per adult, thehighest of any country in our sample.

The negative relationship between governmentdebt and household debt (shown in Figure 9) isconsistent with so-called Ricardian Equivalence,which claims that forward-looking taxpayers under-

stand that an increase in government debt has tobe paid for in the future via higher taxes. They willtherefore save more or reduce their debts whengovernment debt increases. In theory, under ideal-ized conditions, each dollar rise in government debt

Table 1

Countries grouped according to the debt-wealth ratio and debt growth




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would stimulate a dollar increase in household networth. While empir ical tests of Ricardian equiva-lence have been extensive and inconclusive overall,they have not highlighted the relationship betweengovernment debt and household debt across coun-tries. Our finding of a significant negative relation-

ship may well prompt further examination of therelationship between government debt and house-hold liabilities based on international data.

Changes over time

Excluding the Nordic region, government net debtaveraged 41% of household net financial assets in2011. Countries with worse-than-average posi-tions are Italy (49%), Japan (56%), Spain (56%),Poland (57%), Hungary (71%), Ireland (92%) andGreece (112%). With the exception of the Nordiccountries (Norway, Finland, Denmark and Swe-den), the governments financial position worsenedrelative to household assets in all countries between2000 and 2011, particularly after the 2008 finan-cial crisis (see Figure 10). Bulgaria, the CzechRepublic, Lithuania and Romania all moved from agovernment surplus in 2000 to a deficit in 2011.The deterioration in Romania has been particularlysevere, equivalent to wiping out all financial assetsowned by households. In Australia, the govern-ments net financial position was relatively flat andclose to being balanced until 2008, but it has sinceclimbed to 18% of household net financial assets.

Relative government debt has grown by 18% in theUSA (from 14% to 32%) and by a similar amountin Hungary, Poland, Portugal, Spain and the UK.The rise was slightly higher in Japan (from 28% to56%), and considerably higher in Ireland (17% to92%) and Greece (59% to 112%).

Which countries have the greatest problems

with government debt?

Among the countries with the highest levels of netgovernment debt relative to household financial

assets, the situation in Japan, Poland and Spainappears to be manageable, at least based on theevidence until 2011. In Hungary, government debtrose between 2000 and 2010, almost wiping outthe total value of household financial assets, but itpulled back from the brink in 2011. Ireland appearsmore problematic (see Figure 13). Net governmentdebt was close to zero in 2007, but it has sincegrown at a faster rate than any other country,reaching 92% of household net financial assets in2011. The equity market in Ireland was buoyantover the past year, which means that the situationmay have eased in 2012. However, the overall

signs remain worrisome for Irish citizens.While the problems facing Hungary and Ireland

are serious, they pale in comparison to those fac-ing Greece. Household debt in Greece saw analmost sixfold increase between 2000 and 2009,and afterwards edged lower to USD 20,400 per

Figure 8

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selected countries in 2011


Figure 9

Household and government debt as a percentage ofQDQFLDODVVHWV


Figure 10

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200

150

100

-100

-50

-150

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Ireland PolandHungaryGreecePortugal Lithuania Czech Republic Romania

Spain JapanItaly

-50000 50000 150000100000 2000000

Denmark

Norway

Greece

Hungary

Netherlands

Australia

Ireland

United States

Sweden

United Kingdom

CanadaFinland

Poland

Lithuania

Japan

France

Spain

Czech Republic

Germany

Portugal

Cyprus

Italy

Bulgaria

Romania

USD per adult

Households

Households andgovernment combined

1009080706050403020100

0 100 200 300 400 500

Government

Households



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adult in 2011. The increase in debt was muchfaster than growth in financial assets. As a conse-quence, household debt rose from 12% of finan-cial assets in 2000 to 57% in 2011. Governmentnet debt per adult also increased over the period,rising 190% to USD 53,600 between 2000 and

2009, before declining to USD 32,500 in 2011.Greece is the only country whose net governmentdebt exceeds total household financial assets, andthis has been the case every year since 2008.Assigning government debt to households wouldhave resulted in the Greek population having nega-tive financial assets averaging USD 13,000 in200810. While the situation has eased a littlesince then, it still results in negative net financialassets averaging USD 4,800 in 2011.

Summary

With the regular occurrence of sovereign debt cri-ses, relatively little attention has been given to theparallel issue of personal debt. Yet household debthas transformed over the past 30 years from low-level borrowing mostly securitized on housingassets into wholesale credit seemingly available toanyone for any purpose. As a consequence, house-hold debt as a proportion of income has doubledalmost everywhere, and has on occasion explodedby a factor of ten or more.

Our analysis of household debt highlights a num-ber of facts that may come as a surprise. For exam-

ple, Canada now has the highest debt to incomeratio among G7 countries, and Italy has the lowest.The countries with the highest levels of householddebt per adult Denmark, Norway and Switzerland are among the wealthiest and most successful;the average debt in Greece, Italy, Portugal andSpain is much lower. Debt has risen significantly indeveloped countries over the past decade, but it isnowhere near the scale of the developing world,

where almost every country has surpassed theglobal average of 45% growth during 200012.

While a high ratio of debt to net worth does not

itself signify a problem for a country, it does appearto send a warning signal when combined with rapidgrowth in household debt. Greece, Hungary and theUnited Arab Emirates fall within this category and allhave had problems with debt in recent years. Theseproblems were not directly related to householddebt, but rapid growth in personal debt in a highlyindebted country is perhaps indicative of a relaxedcredit environment that may have wider implications.

Contagion in the Eurozone links Ireland, Italy,Portugal and Spain with the problems in Greece.Our estimates of household assets and debts sug-gest that Greece is an outlier among Eurozone

countries, and that the other countries are betterplaced to absorb the rise in government debt. How-ever, the deterioration in Irelands position since2008 remains a source of serious concern. Beyondthe Eurozone, Hungary and Romania are the coun-tries that need to be most carefully monitored.

Figure 11

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Figure 12

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Figure 13

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40000 USD per adult

30000

20000

10000

-10000

-20000

-30000

-40000

-50000

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Government TotalHouseholds

80000

60000

40000

20000

-20000

-40000

-60000

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


USD per adult

15000

10000

5000

-5000

-10000

-15000

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


USD per adult



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Inheritance

of wealthInheritance is an important component ofwealth. Worldwide, 31% of Forbes billionairesinherited at least some of their wealth. If weexclude China, Russia and other transitioncountries, the figure is 38%. More broadly,our analysis suggests that inherited wealthlikely accounts for 30%-50% of total house-

hold wealth in OECD countries. In low-growthor traditional societies, the share is probablyhigher. At the other end of the scale, verylittle household wealth in todays transitioneconomies was inherited.

Introduction

There are positive as well as negative aspects toinheritance from both an economic and a socialstandpoint. For individuals, it can create opportunity the opportunity to start a new business or toexpand an existing one, the chance to acquire agood education, or the freedom to move in order topursue a better life for oneself and ones children.

Historically, it has given some talented people suf-ficient free time to be highly creative in the arts orsciences. Inheritors have also founded or supportedmajor charities and public projects, including hospi-tals, universities, museums, and art galleries. Inother words, inheritance can be an important posi-tive force.

Inheritance also has negative connotations. It isoften seen as a birthright lottery, in which lifetimeprospects are linked to birth rather than personalchoices, effort, and achievement. Andrew Carnegieand others who amassed self-made fortunes fearedthat the expectation of inheritance might under-

mine the work ethic and ambition of heirs, andestablished foundations or made other charitabledonations to partly make up for this. Such concernscould weaken the fabric of society if enough peopleconsider the allocation of resources and opportuni-ties to be unfair, or if wealthy offspring are dissolutePH

OTO:KEYSTONE/XINHUALIUWEIGUO



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16% higher than that of the self-made. However,there is considerable variation in these patterns. Forexample, in France, Japan, and the UK, the inheri-tors are appreciably older than the self-made, whilein China and Russia, billionaires are unusuallyyoung, averaging just 51 years of age.

Large countries are sometimes representative oftheir regions or sub-regions, and sometimes theyare not. In continental Northern Europe, the per-centage of self-made billionaires in France andGermany is similar to the Nordic countries (40%self-made, excluding Norway) and Switzerland(44%); however, in the four other countries in thearea with billionaires (Austria, Belgium, the Nether-lands and Norway), 74% are self-made billionaires(14 out of 19). The self-made billionaire percent-age (

201210 Global Wealth Report

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