The Bank of Spain warns that young people now have less capacity to accumulate wealth and that this may leave them in a more vulnerable situation in the face of future economic shocks. The Family Financial Survey, which the organization published this Tuesday with data going back more than 20 years, allows us to compare the evolution by age of household assets once debts have been subtracted. Those with a head of household under 35 have seen how…

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The Bank of Spain warns that young people now have less capacity to accumulate wealth and that this may leave them in a more vulnerable situation in the face of future economic shocks. The Family Financial Survey, which the organization published this Tuesday with data going back more than 20 years, allows us to compare the evolution by age of household assets once debts have been subtracted. Those with a head of household under 35 years of age have seen how their net debt wealth has decreased compared to those who were of the same age two years earlier. Measured in 2022 euros, it falls a lot: from the 27,000 euros recorded in 2020 to 20,000 in 2022, a decline of 26%. On the other hand, in that same period it has increased somewhat for those over 55 years of age and has remained practically the same for the group between 35 and 55 years of age.

These numbers are calculated by taking the median, the figure that divides the group into two groups right in the middle, with 50% above and the other 50% below. Thus it appears that the net wealth of Spaniards increased by 3.7% between 2020 and 2022. The data contrasts with the 26% drop suffered by the assets of young households. The supervisory body prefers to take the median to give a more faithful reflection of reality, avoiding the distortions that very rich individuals generate in the averages.

These data, prepared with surveys of 6,385 households and the collaboration of the INE and the Tax Agency, show that the consequences of the real estate bubble at the beginning of the century are still valid. If compared to 2008, updating the euros with inflation, the average wealth of Spaniards once debts have been subtracted has not recovered: the median is 140,000 euros compared to more than 220,000 registered 14 years ago. But in households with a head of the family under 35 years of age, the decline is much more pronounced: this figure has plummeted from around 100,000 euros to 20,000. Hence, the Bank of Spain states that young people lose saving capacity: “For young households, a lower accumulation of median net wealth is observed in relation to the accumulation observed by previous cohorts,” it says in its report.

The ability to accumulate wealth among the young generations is quite limited. At age 30, the median net worth is now almost zero. And this happens for various reasons: on the one hand, the bank attributes this trend to the limited ability of young generations to get into debt by getting a mortgage. Which also prevents them from taking advantage of its revaluation later. On the other hand, prices complicate access to housing. And income makes saving even more difficult: corrected for inflation, between 2019 and 2021 the income of groups under 44 years of age falls. On the other hand, from 45 years old they increase in all age groups.

The Bank of Spain explains that employment is a determining factor in these results. Between 2016 and 2019, the incomes of young households improved with the increase in employment. But with the pandemic they have been worse while overall they held up quite well: the median of the total even grew by 1.1% between 2019 and 2021. That is, although household incomes withstood the pandemic very well thanks to some aid financed by the ECB, it seems that young households were somewhat left behind, probably because they had more temporary contracts and had accumulated fewer rights to receive aid. And these are the young people who have been able to form a home. More than half of those born around 1988 continue to live at home with their parents.

It could also be influenced by the fact that young people are pursuing more years of studies and thus delay their entry into the labor market. Although in that case, the Bank of Spain remembers that the effort would later have a reward: when the education of the head of the family reaches university studies, the median household income is 54,900 euros before taxes. On the other hand, in the family whose reference person has less than a high school education, the income drops to 23,000 euros. Having a university degree more than doubles household income, partly because in these families the couple also has similar qualifications and contributes income.

The inverted U

The usual profile of wealth is that it increases with age until a point at which one stops working due to retirement and begins to decrease. It's a kind of inverted U. Older generations also had the advantage that they bought homes when prices were lower and benefited from the enormous appreciation. The real estate market cycle is marking everything that has happened to wealth for generations. And it makes the older ones obtain much greater wealth than the next ones. In fact, the bursting of the bubble greatly affected the assets of those born around the sixties and seventies, flattening that inverted U and causing it to occur before retirement. And the youngest have not even been able to set foot in this process of wealth accumulation because only a third of them have accessed housing.

Even so, the elderly are maintaining higher levels of wealth than the rest, perhaps because they are uncertain about the conditions in which they will grow old and whether they will be dependent and need special care. Maybe they don't spend because they prefer to leave an inheritance to their children. Furthermore, their incomes are improving due to a composition effect: new pensioners enter with better careers and, therefore, with the right to a much higher benefit. This is also due to a Social Security system that pays a very high percentage of the last salary as a pension compared to the rest of Europe.

The figures show that there is a high generational component in inequality in Spain and that an ever-widening gap is being created. This is the case with the percentage of households that own a home. Only 32% of families with a head of household under 35 years of age own their home. More than a decade ago this figure rose to 69%. It has been a drop of 37 points between previous generations and now. In clear contrast and as is partly logical, households over 55 years of age have ownership rates of 80%. What's more, the number of households over 55 years of age that own other real estate properties increases. More than half of them own a second home, a garage, a premises or land. Inheritances at an advanced age may also have played a role in this accumulation of wealth by seniors.

In short, the scars of the crisis that occurred between 2008 and 2014 are persistent. The normal thing was for the new cohorts to surpass the following ones in wealth as they reached the same ages. But this phenomenon broke down with the Great Recession.

The good news is that debt is falling significantly, in part due to the public effort between 2019 and 2021 to support income. This has the unwanted side of fewer young people accessing mortgage loans and, consequently, housing. But even if you take just the people in debt, they have reduced their liabilities substantially. And the payments that families have to make for the debt have significantly reduced their burden on income, lowering their vulnerability. The numbers conclude that the blow of covid has been successfully alleviated. We will have to wait for the next wave of the survey to see the full effects of the inflationary spiral that followed on household accounts.

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