In Australia, Canada, Finland, Germany, Italy, the United Kingdom and the United States, “households in the bottom 20 per cent of the wealth distribution could not cover more than three months of lost income by drawing down savings,” a BIS boffin explains in a new report this morning.
Households in the top 20 per cent of the distribution have financial asset holdings that dwarf subsistence consumption levels, Anna Zabai said in a lengthy paper.
Middle-wealth households, Zabai said, “vary more between countries In Australia, Denmark, Finland, Italy, the Netherlands, Norway and the United States, “the middle 20 per cent of the net wealth distribution could not cover two years of subsistence consumption in case of income loss”, with this rattled conduct going by the epithet ‘wealthy hand to mouth’.
“Elsewhere, the middle-wealth look more like the high-wealth.”
The wealth accumulation culture in Australia brings one helpful legacy.
“As of 2017, the household sector in Australia, Canada, France, Italy, Singapore, Sweden, the United Kingdom and the United States held financial assets in excess of 200 per cent of GDP, while household financial assets in Korea exceeded 150 per cent of GDP.”
Solvency and liquidity, much the same thing when running banks in a heck of a fix (as almost all are today) and it’s the endurance of or otherwise the embarrassment ahead for Aussie households that the BIS doubt.
“The adequacy of household liquidity buffers drops once debt service costs are factored in together with consumption.
“As a rough approximation, debt service burdens can be calculated by combining the OECD Wealth Database information about debt levels in different wealth quintiles with an assumption that all household debt takes the form of instalment loans.”
“Taking these debt service burdens into account reduces resilience,” Zabai said.
The decline in the adequacy of buffers is especially severe for households in the middle 20 per cent of the net wealth distribution.
Zabai, a senior banking specialist at the Bank for International Settlements, listed only a few policy headlines to wrap up.
“Low interest rates and debt repayment moratoriums bolster resilience by temporarily lowering debt burdens.
“In Australia, where debt service costs are more sensitive to interest rates (because mortgages, the bulk of household debt, are adjustable rather than fixed rate), rate cuts will pass through to debt servicing costs.
“At the same time, low interest rates will support the economic recovery, reducing the risk that income loss will be long-lasting.”
An expansionary fiscal policy - of a type not all that assured for Australia – “safeguards households against the prospect of income loss.
“Policymakers have implemented targeted income support schemes in several jurisdictions (here; JobKeeper and JobSeeker). They have also expanded access to unemployment benefits and social protection programmes (eg child benefits).
“Temporary moratoriums on tax payments also help, by alleviating liquidity shortfalls.”
But “these interventions have (re)distributional implications,” BIS’ Zabai pointed out.