One important feature of the distribution of wealth is its relationship with age. There are many determinants of wealth inequality but one of the most important is age. If we divide the population by age quintiles then we see that the youngest households have ten times less wealth than the oldest households.
These tables are taken from a recent CSO release.
Households where the reference person is under 35 make up 20.1 per cent of the sample. These households have a 3.5 per cent share of net wealth.
Households where the reference person is 65 and over make up 20.1 per cent of the sample. These household have a 32.5 per cent share of net wealth.
If we look at median net wealth we see that the gap is even more alarming. The median wealth of the under 35 households is €4,000. The median wealth for the over 65 households is €202,400. The middle household in the under 35 age bracket has 50 times less wealth than the middle household in the over 65 households. Do we want to make this gap smaller? If we want to do that how do we achieve it? Take wealth from the nearly retired and give it to the newly qualified? Would it not be better if this gap was even greater?
Of course, the substantially higher mean net wealth compared to the median for each age category show that within the age cohorts wealth is not evenly distributed. The point is that a key driver of overall wealth inequality is age. People’s wealth levels are different because they are at different points of the life cycle.
This is wealth inequality we should probably have more of not less. Most young households will start off with close to zero net wealth and over their working lives we would like them to repay a mortgage if they have one, build up some savings or grow an investment fund for their retirement. More of this age-related wealth inequality would be good.
This chart from research by the Central Bank on this data shows the evolution of assets and liabilities by age.
We can see that households tend to buy houses in their 30s and 40s (the positive black bars that increase in size) and then repay the mortgage debt over the next 20 years (the negative grey bars that decrease).
Investment in other property assets (the skin coloured section in the middle of the bars) increases when people are in their 40s and 50s with financial assets (the light blue at the top of the bars) making a small contribution to the increase in wealth by age. By the time households reach their 70s debt levels are very low and they begin to sell assets (mainly other property assets).
Again though these are average values so do not tell us much about the distribution within each age category. If we do have problems with wealth inequality it would be helpful to look at the distribution within age categories rather than across the entire population. We should have more wealth inequality by age not less.Tweet