© The Treasury/code Individual Net Worth in New Zealand: A Preliminary Analysis of a New Survey John K Gibson & Grant M Scobie Conference of the NZ Society of Actuaries Rotorua, November 13-15, 2002

© The Treasury/code Acknowledgements Statistics NZ Office of the Retirement Commissioner

© The Treasury/code Outline New Survey Some Basic Results What Determines Net Wealth Are there Ethnic differences? Do Student Loans matter? Human capital – a hidden asset? Conclusions and Unfinished Business

© The Treasury/code Household Saving Survey Net wealth of NZ households 2001 – first time; assets & liabilities Background: Retirement Income Act 1993 Periodic Review Group 6,600 households approached Plus Maori “booster” sample 74% response rate : n = 5374

© The Treasury/code Coverage Households (not institutions) 18+ age Resident of NZ One individual per household – randomly selected. If couple present, then both included – assumed wealth was split 50:50

© The Treasury/code Sample Size

© The Treasury/code Assets & Liabilities House 36% Farms & Business 18% Super. & Life Ins 8% Trusts 6% Shares & Funds 6% Bank deposits 6% Rental Prop 4% M/Vehicles 4% TOTAL$444bn Mortgage 80% Bank Debt 10% Student Loan 5% Credit Card/ HP 4% TOTAL $68bn

© The Treasury/code Structure of liabilities: individuals Type of Liability Median Value Percentage of all individuals reporting holding this asset (%) Mortgage$68, Student Loan$9, Credit Card$ Bank debt$2, Hire purchase$1,

© The Treasury/code Structure of assets: individuals Type of AssetMedian Value Percentage of all individuals reporting holding this asset (%) Property$139, Super$12, Business$30, Bank deposits$1, Trusts$101, Maori assets$15,0002.8

© The Treasury/code Structure of assets: international TypeCanada % USA % NZ % Residence Other property810 Superannuation15116 Shares & Funds6186

© The Treasury/code Distribution of Net Worth Negative23 $0 - $20,00034 $20,001 - $100,00016 $100,001 - $500,00023 $500,001 and more4 Level of Net WorthPercentage of Individuals Total100

© The Treasury/code Inequality in the Distribution of Income and Wealth Proportion of individuals Share of Income or Wealth Perfect Equality 50% HDI NW 0 100

© The Treasury/code Gini Coefficients: 0 EQUAL 1 UNEQUAL Household Disoposable Income Net Worth

© The Treasury/code Net Worth by age: individuals

© The Treasury/code What matters for net worth?…1 VariableImpact AgeSignificant GenderNS Marital statusNS MaoriNS Pac IsNS Asian+ ($45,500) OtherNS

© The Treasury/code What matters for net worth?…2 VariableImpact MigrantNS Rural+ ($66,800) Metro+ ($18,800) Region 10+ ($80,000) Yrs Sec. Schooling+ ($7,500) Rec’d Inheritance+ ($45,500) Amount of Inheritance+ 56 cents per $1 Expect Inheritance+ ($23,200)

© The Treasury/code What matters for net worth?…3 VariableImpact Age first bought propertySignificant (-$2,100/yr) Property as share of NWSignificant (-$36,000/yr) Shares as share of NWNS

© The Treasury/code What matters for net worth?…4 VariableImpact Main income self-empSig (+$250,000) Main income NZ SuperSig (-$54,000) Main income other pensionNS Main income other supportSig (+$26,000) Main income investmentSig (+$270,00) Main income otherSig (+$111,000) Main income not spec.Sig (+$58,900)

© The Treasury/code What matters for net worth?…5 VariableImpact Age at first employment NS Number of years employed Sig (+$1,250) Full time NS Unemployed NS Not in labour force NS Labour Force status relative to part-time

© The Treasury/code What matters for net worth?…6 VariableImpact Occupation: Managers NS Occupation: Professionals NS Occupation:Technical NS Occupation:Clerical Sig (+$39,000) Occupation: Service & Sales NS Occupation: Agric. & fisheries Sig (+$83,000)

© The Treasury/code What matters for net worth?…7 VariableImpact Occupation: Trades NS Occupation: P&M Operators NS Occupation: Elementary NS Occupation: Not specified NS Unemployed NS Occupation relative to not in labour force

© The Treasury/code Individual Net Worth by Ethnicity Ethnic Group Mean Median European/Pakeha 119,900 21,700 Maori 38, Pacific Islands 46,4000 Asian 59,900 3,000 Total 97,900 10,300

© The Treasury/code Effect of Ethnicity on Individual Net Worth: Conditional Estimates Ethnic Group Coefficient t-value Maori Pacific Islands 16, Asian52, Constant118,500

© The Treasury/code Factors explaining Maori-Pakeha differences in net worth

© The Treasury/code Human Capital? Plumber: –Assets: $120,000 –Liabilities: $60,000 NET = +$60,000 Dental Student: –Assets: Nil –Liabilities: $60,000 NET = - $60,000 Something is missing?

© The Treasury/code Estimating human capital Present value of future labour earnings Allow for unemployment, real growth and survival Recursive Allows for market based labour income to age 65 No change of status - conservative

© The Treasury/code Human capital of Pakeha females

© The Treasury/code Human capital of Pakeha males

© The Treasury/code Conclusions…1 Unequal distribution of wealth Partly reflects age structure Age is a key variable Income matters Not much else: –Gender  –Marital status  –Migration 

© The Treasury/code Conclusions…2 Inheritances matter Secondary schooling matters Buying property matters Years employed matters Student loans – some modest effect No ethnic effect Human capital – could be very important

© The Treasury/code Caveats Only for individuals – not couples No cohort effects Incorporate human capital Retirement income adequacy Still 60% unexplained variation