You might be among the world’s richest people and not realize it

By January 23, 2016 Finance No Comments
You might be among the world’s richest people and not realize it

Most people these days know that global wealth is unequal, and becoming more so. But the latest statistics that illustrate these trends are still mind boggling, no matter how you look at them.

There are lots of ways of comparing the inequality of wealth — which is defined as people’s assets, like their savings and property, minus their debts. One is that the world’s richest 1 percent has more wealth than the rest of the globe combined, according to data from Credit Suisse.

Another is that, in 2015, just 62 people in the world had the same wealth as the poorer half of humanity – 3.6 billion people, according to a new report by Oxfam, the antipoverty organization, which makes calculations based on the Credit Suisse data.

These 62 people are very, very rich, to be sure, but it’s also true that the global bottom half is desperately poor. And for that reason, who really counts among the world’s richest — the top 100, the top 1 percent, the top 10 percent, etc. — is a matter of perspective. It depends on whether you’re judging yourself against your neighbors, your fellow citizens, or the entire world’s population. Compared with the rest of the world, a middle class American with a little bit of wealth looks quite privileged.

To be among the wealthiest half of the world last year, an adult needed to own only $3,210 in net assets (minus debts), according to the data. To be in the top 10 percent, a person needed to have only $68,800 in wealth. To be in the top percentile, the threshold climbed to $760,000, according to Credit Suisse.

According to the Federal Reserve, the median American family had $81,000 in net worth in 2013.

To get an idea of this inequality, you can try visualizing the global wealth distribution like a pyramid:

  • The base comprises adults with less than $10,000 in wealth. This is the bulk of the global population — 71 percent, to be exact, who altogether own only 3 percent of global wealth, according to Credit Suisse data.
  • The next level up, with wealth of $10,000 to $100,000, contains 21 percent of the world’s population, but has 12.5 percent of its wealth.
  • The next level, from $100,000 to $1 million, has just 7.3 percent of the population and about 40 percent of the wealth.
  • And at the very top of the pyramid are those with over $1 million in wealth. This group contains only 0.7 percent of the world’s adults, but collectively they own 45 percent of the world’s assets, says Credit Suisse.

And that inequality has worsened in recent years. According to Oxfam, the wealth of the richest 62 people has risen by more than half a trillion dollars since 2010, while the wealth of the poorer half has stagnated.

Not everyone embraces these figures. Journalists Ezra Klein and Felix Salmon critiqued Oxfam’s figures last year, with Salmon actually calling them “crap.”

A main part of the critique is that, in analyzing the world’s wealth, the Credit Suisse data subtracts debt from the picture. As a result, the poorest portion of the world population includes some people in developed countries who have taken on debt to, for example, go to graduate school or start a business – not the people who you would usually think of as the world’s most destitute.

In the graph below, those people make up the triangle in the upper-left – North Americans who are among the world’s poorest people, since they actually have negative net worth. Critics argue that these debtors drag down the overall wealth of the world’s poorest people and distort the picture of global inequality. By the numbers, they are the world’s poorest people, but their ability to take out loans and go into debt is actually a sign of relative privilege.

But how much of global wealth do these indebted people really represent? I reached out to Tony Shorrocks, the lead author of Credit Suisse’s Global Wealth Databook, and Deborah Hardoon, the lead author of the Oxfam report, which draws on Shorrocks’ data. They both said that while there are rich-but-indebted people on the lower end of the spectrum, it doesn’t really change the overall picture.

According to Shorrocks’ calculations, there are 2.4 billion adults (excluding kids) in the bottom half of the global wealth distribution, and 108.6 million of those adults have negative wealth. The chart below shows how the wealth and debt of the world’s bottom 2.4 billion adults looks graphically, with negative wealth (or debt) shown in blue and positive wealth shown in red.

As you can see, there is a lot of debt in high-income countries on the left, but little debt in middle or low income countries. And the overall debt of the global bottom half — the blue areas in the chart above — do look substantial compared to the red areas. The net debt of the world’s bottom half comes to $844 billion, says Shorrocks, which drags down the net wealth of the bottom half from $2.3 trillion to $1.5 trillion.

That might seem like a lot. But compared to the wealth held by the richer half of the globe, it’s peanuts. According to Shorrock, $844 billion is only about one-third of 1 percent of the world’s total net wealth.

That’s a lot of numbers, but the basic lesson is this: Because global inequality is so extreme, the bottom half of the global wealth distribution is only a tiny amount of the world’s wealth. So even if you disregard the debt of the bottom half entirely, the big picture stays largely the same. If you remove the $844 billion debt from the chart above, says Shorrock, the wealth of the bottom half rises to $2.3 trillion, which is still less than 1 percent of total global wealth.

In that scenario, it would take the wealth of about the world’s 100 richest people to equal the wealth of the bottom half of the globe, instead of Oxfam’s original calculation of 62 people, says Shorrocks.

“My conclusion is that the treatment of those with negative wealth has little impact on wealth inequality worldwide, although it can be important for particular countries (e.g. Norway, Denmark),” Shorrocks writes.

Hardoon, the author of the OxFam report, agreed. “Even if we ignore the bottom decile (which of course includes many people that are poor and in poor countries), this does not affect our overall finding,” she says.

The researchers at Credit Suisse write that the study of global household wealth is still in its infancy, and that their data is incomplete.

The concept of adding up the wealth of different parts of the global population and comparing them to each other isn’t a perfect one. But it does give you an idea of just how skewed global wealth really is.

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