Source: https://beta.gov.scot/publications/wealth-assets-scotland-2006-2014/pages/9/
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This chapter looks at the least wealthy 30% of households [23] , referred to as the "least wealthy households". Those with low wealth have worse outcomes in health, education, access to the housing market and wellbeing - and have less opportunity to grow their wealth. The least wealthy 30% of households own very few assets, and are therefore unlikely to have the capacity to build assets and wealth in the future.
This chapter presents the socio-demographic characteristics of these households and looks at the financial assets and non-mortgage borrowing of this group, and how this compares to the population as a whole.
7.1 The share of wealth of the least wealthy households
The least wealthy 30% of households have very few assets, with some having negative assets (where borrowing is greater than the value of assets owned). The share of wealth for this group has not really changed across the four survey periods.
In 2012/14, the least wealthy households owned 1.9% of total net household wealth [24] . The least wealthy households owned:
0.3% of financial wealth;
0.1% of private pension wealth;
0% of property wealth (with negative property wealth for some, where the value of mortgage borrowing was greater than the value of the property);
6.7% of physical wealth.
7.2 The demographic composition of the least wealthy households
This section provides information on household type, age, employment status, education, socio-economic group and tenure of the least wealthy households in Scotland.
Building up a stock of wealth is a cumulative process across a person's life course, often until retirement when individuals may start to draw down pension funds and use savings. However, for some households, low income through working life means little capacity to accumulate wealth.
Chart 7.1 below shows that households with a head of household aged less than 45 years were over represented in the least wealthy households, while older households were less likely to be in low wealth.
Chart 7.1 Age of head of household, least wealthy 30% and whole population, 2012/14
Chart 7.2 below shows the median wealth by age group of the head of household, and demonstrates the accumulation of wealth through working life, with reductions in wealth in retirement as pensions are drawn down. For younger households, the main component of wealth is property and physical wealth. From the age of 35 years to 74 years, the largest component of wealth is pension wealth - for 55-64 year olds this is around 60% of total wealth. In older age (75 and older) property becomes the main wealth component.
Chart 7.2 Median wealth by age band of head of household, 2012/14
However, while underrepresented in the low wealth group, 28% of those in low wealth were of retirement age or older. For this group, low wealth in retirement reflects a lack of ability to accumulate wealth due to low income and low social mobility through life.
The opportunity for the younger households today to build wealth as they move through life may be more difficult than for previous generations. The Intergenerational Index 2016 UK shows those born in the 1980's are the first post-war generation not to start their working life with higher incomes than the generation immediately preceding it. In addition, house prices continue to increase at a much faster rate than earnings meaning younger households are now less likely to own their own home by the age of 30. Changes in the labour market may make it harder for those who start on low pay to move out of low pay, and under-employment is a problem for many graduates who are not using the skills they gained in higher education. [25]
7.2.2 Household type
Chart 7.3 below shows the household type of the least wealthy households compared with the population as a whole.
Chart 7.3 Household composition, least wealthy 30% and whole population, 2012/14
Single adult households (lone parents, single working age adults and single pensioners) account for around 60% of low wealth households but make up only a 40% of the total population.
Within this single working age adult households were most over represented, accounting for a quarter of the low wealth households. This group also have a higher risk of poverty [26] . Lone parents with dependent children and single pensioners were also over represented in the least wealthy households (with 22% of low wealth households being single pensioner households, and 11% being lone parents with dependent children). Couples without children, and pensioner couples were the least likely to be in low wealth households.
Chart 7.4 below shows the risk of low wealth - the percentage of each household type in low wealth households.
Chart 7.4 Risk of low wealth by household type, 2012/14
Single parents with dependent children have the highest risk of low wealth. Nearly two thirds of single parents with dependent children were in low wealth households in Scotland in 2012/14. Single parent families also face the highest risk of poverty, with a quarter of single parent households living in poverty in 2014/15. There is a clear link for this group between low income and low wealth, with the majority of single parents in employment being in part time employment, which tends to be lower paid and less secure, to fit around caring responsibilities [27] .
Over half of single working age adult households in Scotland were in low wealth households in 2012/14. This may reflect the lower household income available to single adult households. It may also reflect the lack of employment, particularly for younger age groups, resulting in low income and a lack of resources to build wealth. For young single adults in employment, this is at the start of their working life and so tends to be entry level and therefore lower paid.
By contrast, couple households have a significantly lower risk of low wealth. A quarter of couples with dependent children were in low wealth in 2012/14. But this risk halves when children are no longer dependent. This reflects the ability to take up employment as children grow into adulthood, and the fact that these couples are likely to be older and so have had more time to build wealth, pay into pensions, and pay back mortgages.
Pensioner couples (either both pensioners, or one pensioner one working age) have the lowest risk of low wealth. This reflects the fact that wealth accumulation is cumulative through life. Pensioners have had their working lifetime to build wealth, with the majority having no mortgage, and having benefitted from the increasing house prices over their lifetime.
7.2.3 Employment status
Employment is no guarantee of earning enough income to accumulate assets such as a house. Nearly half (45%) of the low wealth households were headed by someone in employment at the time of the survey. Chart 7.5 below shows the employment status of the head of household of the least wealthy households, compared to the whole population.
Chart 7.5 Employment status of head of household, least wealthy 30% and whole population, 2012/14
Households headed by someone who is unemployed have the highest risk of low wealth. Chart 7.6 below shows the risk of low wealth by employment status of the head of household. All households where the head of household is not in employment have a significantly higher risk of being in low wealth. While around half of households in the low wealth group were headed by someone in employment, around a quarter of households where the head is in employment were in low wealth.
Chart 7.6 Risk of low wealth by employment status of head of household, 2012/14
7.2.4 Educational qualifications
Education is strongly linked to earnings. Research suggests that barely one in ten low-paid workers at the start of the last decade had escaped low pay by the end [28] .
Chart 7.7 below shows the highest educational qualification of the head of household of the least wealthy group, compared with the whole population. The least wealthy households were more likely to have a head of household with no qualifications, with 90% of low wealth households headed by someone with qualifications below university level.
Chart 7.7 Education of head of household, least wealthy 30% and whole population, 2012/14
There is a strong link between household income and educational outcomes for children. In the UK only one in eight children from low income backgrounds is likely to become a high income earner as an adult [29] . Children in low income households today may not have the opportunity to generate higher wealth in adulthood.
7.2.5 Socio-economic group
The socio-economic group of the head of household has a significant impact on the likelihood of being in low wealth. Chart 7.8 below shows the socio-economic group of the head of household of the least wealthy households and the whole population. Nearly two thirds of the least wealthy group were headed by someone in a routine or manual occupation. There are links between the socio-economic group, presented here, and the educational qualifications presented in the section above. Routine and manual occupations tend to be lower skilled and lower paid, so households are less able to set aside money to invest in wealth.
Chart 7.8 Socio-economic group of the head of household, least wealthy 30% and whole population, 2012/14
However, 13% of low wealth households were headed by someone in managerial and professional occupations. As noted above, the ability of a household to accumulate wealth is determined by a number of factors, including life stage.
7.2.6 Tenure
The least wealthy households were significantly less likely to own a property, and for those that did, the value of the property was at the lower end of the property market.
Chart 7.9 below shows the tenure of the least wealthy households compared to the whole population . Nearly all of the least wealthy households (84%) rent their accommodation, with only 13% buying with a mortgage. In contrast, 65% of the whole population were homeowners (half of whom owned their home outright), with a third renting.
Chart 7.9 Tenure of main residence, least wealthy 30% and whole population, 2012/14
Chart 7.10 shows the value of the main residence, for the least wealthy households and the whole population, for those households who owned a property. In 2012/14, 64% of the least wealthy households, who were owner occupiers, owned a property worth less than £100,000 - this compares with 25% of the whole population. Nearly all (93%) of the least wealthy group who were owner occupiers owned a property valued at less than £150,000, compared with half (49%) of the whole population.
Chart 7.10 Value of main residence, least wealthy 30% and whole population, 2012/14
The least wealthy households, as well as being less likely to own a home, or to own a higher value property, owned significantly less wealth in household contents, than the whole population. Chart 7.11 below shows 76% of the least wealthy households had household contents valued at less than £20,000. This compares with 37% for the whole population. By contrast, nearly half (47%) of the whole population owned household contents valued at £30,000 or more (compared with 13% of the least wealthy households).
Chart 7.11 Value of household contents, least wealthy 30% and whole population, 2012/14
7.3 Financial assets of the least wealthy households
This section looks at the ownership of financial assets (both formal and informal) and the value of those assets, by the least wealthy households compared to the whole population. Financial wealth comprises: formal financial assets (such as bank accounts, savings accounts, stocks and shares); informal financial assets (such as money saved at home); and liabilities (such as formal borrowing, overdrafts and arrears on household bills). Analysis is split into two parts: ownership and value of formal financial assets, and the ownership and value of informal financial assets. Analysis of financial liabilities is in the next section.
7.3.1 Ownership of financial assets
The least wealthy households were less likely to own financial assets, such as a current account in credit, savings account, or ISA, than the whole population. Chart 7.12 below shows the proportion of the least wealthy households, and the whole population, who owned formal financial assets in 2012/14.
Chart 7.12 Ownership of formal financial assets, least wealthy 30% and whole population, 2012/14
* indicates zero value
Insurance products are life insurance, Friendly Society or endowment policies (excluding endowments linked to mortgages). Excludes term insurance policies i.e. life insurance policies which only have a value if the holder dies in the period of the insurance.
Shares include both UK shares and overseas shares.
While over three quarters (77%) of the least wealthy households had a current account in credit, this remains lower than for the population as a whole (at 89%), with rates of ownership of other financial assets very low for this group: 20% had a savings account, compared to 45% of the whole population; 14% had an ISA, compared to 40% of the whole population; and 3% owned any other financial assets, compared to 29% of the whole population.
7.3.2 Change in ownership of financial assets over time
As Chart 7.13 shows the ownership of financial assets by the least wealthy households has decreased in 2012/14 compared with the previous period. Following increases in ownership of current accounts in credit, savings accounts and ISAs in 2008/10, the rate of ownership of savings and ISAs by the least wealthy households decreased in 2010/12 and decreased further in 2012/14.
Chart 7.13 Change in ownership of financial assets by the least wealthy 30% of households, 2006/08 - 2012/14
7.3.3 Value of financial assets
Chart 7.14 below shows the median value of formal financial assets owned by the least wealthy households and the whole population in 2012/14. The median is the middle value at which half of households have assets valued at less than this, and half have assets valued at more.
The majority of the least wealthy households did not have financial assets except for a current account in credit. The following analysis is based on the least wealthy 30% of households in terms of total wealth, however analysis of the value of financial assets only includes those households which owned financial assets. The analysis only looks at the value of financial assets owned, and does not take account of debts.
The median value of all financial assets owned by the least wealthy households was £500, less than a tenth of the median value of financial assets owned by the population as a whole (£5,600).
Chart 7.14 Median value of all formal financial assets owned, least wealthy 30% and whole population, 2012/14
The median value of cash held in current accounts by the least wealthy group (£343) was around a third of that for the whole population (£1,120). The least wealthy households had around a seventh (£700) of the value of cash in savings accounts as the whole population (£5,000). A similar pattern exists for the value of ISAs, with the value of ISAs owned by the least wealthy households (£1,200) being around an eighth of that owned by the whole population (£9,300). The difference in the median value of financial assets owned by the least wealthy households and the whole population is even greater for all other types of financial assets.
The median value of financial assets owned by the least wealthy households is largely unchanged between 2006/08 and 2012/14, while there have been small increases for the whole population.
The median value of financial assets for the least wealthy households was £500 in 2012/14 - no real change from £450 in 2006/08. Over the same period the median value for the whole population increased from £5,170 to £5,600. At the same time the median value of financial assets of the wealthiest households increased from £80,500 to £103,416.
7.3.4 Informal financial assets
The value of informal assets held by the least wealthy increased to £680 in 2008/10 and has subsequently decreased to £350 in 2012/14. This is similar to the pattern seen across the whole population, where the median values of informal assets decreased from £700 in 2006/08 to £554 in 2012/14.
7.4 Non-mortgage borrowing
This section looks at the prevalence and value of household borrowing, excluding mortgage borrowing. Non-mortgage borrowing includes borrowing such as credit card debt, student loans, overdrafts, formal loans, store card and mail order debt, hire purchase debt and arrears on household bills.
7.4.1 The prevalence of borrowing
Just over a third (36%) of the least wealthy households had debts, the same as for the whole population. However, while the overall prevalence of borrowing among the least wealthy households is similar to that for the whole population, the type of debt held differs between the two groups.
Chart 7.15 below shows the prevalence of non-mortgage borrowing, by type of borrowing, for the least wealthy households compared to the whole population. More than one in ten (11%) of the least wealthy households had arrears on household bills - nearly three times the rate for the whole population (4%). The least wealthy households were also more likely to have a current account overdraft than the whole population. While the least wealthy group were less likely to have credit card debt, they were more likely to have mail order debts.
Chart 7.15 Percentage of households with non-mortgage borrowing by type of borrowing, least wealthy 30% and whole population, 2012/14
7.4.2 Change in the prevalence of borrowing over time
Household non-mortgage borrowing continued to fall in 2012/14 for the least wealthy households. The least wealthy households have reduced the prevalence of borrowing at a faster rate than that for the whole population.
In 2006/08 43 per cent of the least wealthy households had borrowings (compared with 40 per cent of the whole population). This decreased across the survey periods to 36 per cent in 2012/14. For the whole population, 40 per cent of households had non-mortgage borrowings for the first three survey periods, falling to 36 per cent in 2012/14.
Chart 7.16 below shows the changes in the prevalence of non-mortgage borrowing between 2006/08 and 2012/14. There have been decreases in the prevalence of all types of borrowing, with the exception of mail order debt (which increased in 2012/14) for the least wealthy households. Across the whole population, the prevalence of borrowing remained unchanged for most types of borrowing - but there was a decrease in the percentage of households with household arrears.
Chart 7.16 Percentage of households with non-mortgage borrowing by type of borrowing, least wealthy 30% 2006/08 - 2012/14
7.4.3 The value of borrowing
While the prevalence of borrowing for the least wealthy households is the same as that for the whole population, the value of borrowing is lower for the least wealthy households. This may be expected, as the value of borrowing is often linked to income.
Chart 7.17 below shows the median value of borrowing for the least wealthy households and the whole population in 2012/14. The median value of non-mortgage debt for the least wealthy households was £1,200 in 2012/14, compared to £3,550 for the whole population. This likely reflects the lower capacity of these households to borrow and repay debts. The median value of household arrears was slightly lower for the least wealthy households at £600, compared with £760 for the whole population. However, as noted above, nearly three times as many of the least wealthy households had arrears on household bills than the population as a whole.
Chart 7.17 Median value of non-mortgage borrowing, least wealthy 30% and whole population, 2012/14
7.4.4 Change in the value of borrowing over time
The median value of household non-mortgage borrowing for the least wealthy households decreased in 2012/14, and has returned to pre-recession levels. For the whole population however, the median value of household borrowing increased sharply in 2010/12, and has remained at this level. Chart 7.18 below shows the median value of household non-mortgage borrowing over the four survey periods for the least wealthy households compared with the whole population. While the least wealthy households have reduced median value of their borrowing, this is not the case across the whole population.
Chart 7.18 Median value of non-mortgage borrowing, least wealthy 30% and whole population, 2006/08 - 2012/14
For the least wealthy households, there has been a change in the type of household borrowing: the median value of formal loans has increased, and the increase in the value of household arrears has continued in 2012/14. There has however been a decrease in other form of debt - particularly overdrafts, store card debt, and hire purchase debt. Across the whole population, with the exception of store card debt and informal loans, the value of all types of household borrowing increased between 2006/08 and 2012/14.