Imagine that you sell all your belongings and pay back your debts right now. The total amount of money you would obtain after doing so can be understood as your wealth. More precisely, wealth refers to the value of possessions (such as your house, money in the bank, savings, stocks, and businesses) minus any money owed on these assets. Such debts include mortgages, loans, and credit card debt.

Wealth is an economic resource that can be used to deal with unexpected financial trouble, to invest, to reduce monthly housing expenses, or to help out others. But not all benefits are economic. Even though the statement “more money, more problems” might be true on some level, economic resources do improve well-being. Research shows that wealthy persons enjoy better health, have more stable relationships and live longer. Furthermore, individuals’ perception of how wealthy they are matters for happiness and subjective well-being.

Because wealth matters for many outcomes in life, the question of who owns how much wealth is important. Some years ago, academics across the world sounded alarms that the distribution of wealth across households has become less and less equal. Spain is no exception to this trend. Graph 1 shows the percentage of total wealth that is owned by the wealthiest 10% of households in Spain, a commonly used indicator of wealth inequality. As shown in the graph, the share of wealth owned by the wealthiest 10% of Spanish households rose from 43% to 54% in fifteen years (2002-2017). 

Increasing wealth inequality is a concern across rich countries, but in Spain there are reasons to be particularly worried. First of all, Spain holds the record of having the highest “wealth-to-income” ratio found in any country with available data since 1900. Researchers have calculated so-called wealth-to-income ratios to show how the total value of wealth in society compares to national income. In Spain, wealth is therefore likely to play a comparatively large role in the economic well-being of households. Second, wealth is an important economic resource for a much larger share of the population as compared to many Northern and Western European countries, primarily because the great majority of Spanish people live in a house that is owned by one of the household members. This means that changes in wealth could affect a larger share of the population, including economically vulnerable households. 

The importance of wealth for large shares of the Spanish population raises the question of how households with relatively little wealth have fared over recent years, especially during and after the financial crisis. The Bank of Spain has been collecting detailed information on the income and wealth of a sample of Spanish households that allows us to answer this question. Graph 2 shows the percentage of individuals that lived in a household with a given level of wealth during the period 2002-2017 (adjusted to 2017 prices).

In 2002, a relatively small proportion of individuals lived in households with more than €1 million of wealth and also a relatively small proportion lived in households with zero or negative wealth (i.e., households in which the total debts are greater than the value of all assets owned). The size of both groups grew until 2008, after which point the proportion of millionaires went down, whereas the group of individuals who lived in households with no or negative wealth kept growing. Unfortunately, this share did not decrease after the crisis. In 2017, 8.8% of the Spanish population lived in households with negative wealth, and 5.9% in households with no or less than €2,000 of wealth. Hence, increasing wealth inequality in Spain is not only about the wealthy getting wealthier, but also about an increasing share of the population not having any wealth at all. 

The extent to which households with no or negative wealth are economically vulnerable depends on the other resources at their disposal. A household might be in debt because they just made a major investment thanks to a high, steady income. However, a household might also be in debt because their home has lost value or because low income has led to arrears in mortgage payments or other accumulation of debts. Unfortunately, having no or negative wealth became much more likely among those with few resources between 2002 (graph 3) and 2017 (graph 4) in Spain, which would be reflected in the latter, more concerning scenario.

The graphs divide the population into 5 groups (quintiles) based on the total yearly income of the household. In other words, the first column indicates the wealth of the 20% of households with the lowest income in Spain in that year (first quintile). The fifth column indicates the wealth of the 20% of households with the highest income (fifth quintile). Increases in the proportion of individuals living in households that are indebted have been most dramatic among households that also have the lowest household income. Individuals from the richest group of households barely experienced increases in the share of households in debt. We therefore see a considerable increase in the share of individuals living in households with low income that are also in debt or have little wealth. This observation is concerning, especially taking into account the fact that many of these households are likely to have experienced a drop in income during the covid-19 pandemic.

As compared to other rich countries, the safety net provided by the state through, for instance, unemployment support and retirement schemes is more limited in Spain. In addition, unemployment levels have been consistently above the European average over recent decades. Hence, even though a relatively large share of the Spanish population has wealth, Spanish households also have to use their wealth more often when income does not suffice. The observation that the share of individuals living in households with no wealth is increasing in Spain might imply that an important resource to deal with losses in income is disappearing for many economically vulnerable individuals. 

How did the ability to deal with income losses develop? Whereas there are economic advantages related to all kinds of wealth, not all are easy to access in times of economic need. For instance, accumulating wealth by buying a house and paying back the mortgage over time can be a strategy for reducing housing costs in later life (e.g., when retiring), but a home cannot easily be cashed in to pay next month’s bills. Graph 5 shows how different indicators of wealth developed over time in Spain. 

Graph 5 shows that ever fewer persons in low-income households have access to the most readily available form of wealth: money in the bank. In 2017, only 42% of individuals living in low-income households had at least €1000 readily available to make payments, as compared to 95% of individuals from high-income households. Similar trends are observed when considering all forms of financial wealth, which includes all money in savings accounts, investments funds and stocks and excludes real assets, such as housing or valuables. Using a home that is owned without debt as collateral for a loan or mortgage is another way of accessing wealth, but graph 5 shows that this possibility is declining rapidly for low-income and high-income households alike. Hence, not only is wealth overall declining among low-income households, but so is accessible wealth.

Wealth inequality has been increasing across European countries. Even though this development has received considerable attention, there are good reasons to be extra concerned about this trend in Spain. Internationally, much of the debate has centred around how the wealthy have accumulated even more wealth over the last decades. But once translating this debate to Spain, additional points of concern arise. In Spain, in addition to increasing wealth accumulation among the wealthy, ever more people from low-income households do not have wealth or are in debt. This is especially problematic in the Spanish context in which the well-being of economically weaker households depends to an important extent on wealth. High unemployment, low earnings and relatively limited social security mean that Spanish households have to access their wealth to deal with losses of income relatively often (or rely on cost-reductions related to housing wealth). If an increasing share of households do not have wealth to deal with such income losses, this is likely to lead to severe deprivation. Policies addressing economic inequality will therefore have to consider how they can compensate for the erosion of wealth among the economically weakest. 

Anghel, B., H. Basso, O. Bover et al. (2018): «Income, consumption and wealth inequality in Spain», SERIEs, 9(4).

Barceló, C., L. Crespo, S. García-Uribe, C. Gento, M. Gómez and A. de Quinto (2020): The Spanish Survey of Household Finances (EFF): description and methods of the 2017 wave, Documento Ocasional 2.033, Banco de España.

Artola Blanco, M., L. Bauluz and C. Martínez-Toledano (2021): «Wealth in Spain 1900-2017: A country of two lands», The Economic Journal, 131(633) .