Decline In Household Net Worth Continues In June
24 August 2001
DECLINE IN HOUSEHOLD NET WORTH CONTINUES IN JUNE
The net worth of New Zealand households continued to decline in the June 2001 quarter, according to the latest WestpacTrust Household Savings Indicators as compiled by NZIER and Morningstar.
Over the quarter ended June 2001, New Zealand household net worth fell by $0.8 billion (0.4%). Net worth is now some $2.5 billion (1.2%) lower than a year ago. Meanwhile financial net worth - which excludes housing assets and liabilities - rose by $1.7 billion (1.8%) in the quarter.
Overall, household wealth remains a key influence on consumer confidence and, hence, household spending. "The persistent decline in household net worth over the past year will continue to act as a constraint on household spending going forward. Nevertheless, strong employment and earnings growth over the past six months is expected to provide support to household spending in the second half of this year," said WestpacTrust economist Donna Purdue.
Growth in liabilities rises in June
Continued growth in liabilities drove the decline in net worth again this quarter, with households borrowing an additional $1.3 billion, an increase of 1.8% from March. Over the year to June 2001, liabilities have grown by 6.2%. This represents a strengthening in the rate of household borrowing. Until this quarter, annual growth in household liabilities had been slowing since December 1999. ‘other’ purposes contributed to the growth in liabilities this quarter, with both rising 1.8% compared to the March 2001 quarter. However, borrowing for housing continues to be the key influence, accounting for over 90% of total borrowing.
HSI - Summary Data | Jun-01 | Mar-01 | Quarterly |
Mar-00 | | Annual Change |
| | Qtr | Qtr ($m) | $m | % || Qtr ($m)$m% |
| Total Assets | 275,805 | 275,298 | 508 | 0.2 || 274,032 1773 | | 0.6 |
| Financial Assets | | 105,950 | 1857 | 1.8 || 105,06027472.6 |
| | 107,807 | | | |
and term | 43,973 | 43,585 | 387 | 0.9 ||
| deposits | | | | |
| Managed Funds | 39,734 | 38,976 | 758 | 1.9 || 38,33513993.6 |
| Other | 24,100 | 23,389 | 711 | 3.0 || 24,788-688-2.8 |
| Housing Stock | | | -134.9 | -0.8 || 168,972-974 |
| | 167,999 | 169,348 | | | | -0.6 |
| Total Liabilities | 72,648 | 71,340 | 1307 | 1.8 || 68,38742606.2 |
| Net Worth | | | | |
| Total (incl | | 203,957 | -800 | -0.4 || 205,644-2487-1.2 |
| housing) | 203,158 | | | |
| Financial (excl. | | 99,123 | 1737 | 1.8 || 98,64922112.2 |
| Housing) | 100,860 | | | |
Growth in household assets underperforms liabilities
In comparison to the growth in liabilities, the value of New Zealand households’ assets increased by just $0.5 billion, or 0.2% in the June 2001 quarter. This lifted asset values to a level $1.8 billion higher (0.6%) than a year earlier.
The rise in the value of household assets largely reflects an improvement in financial assets (i.e. assets excluding housing), which increased 1.8% in the quarter. Financial assets are now 2.6% higher than a year ago. The rise in the value of financial assets over the quarter was due mainly to a 6.5% increase in the value of funds held in unit trusts and group investments, and a 6.1% increase in funds held directly in the sharemarket (up 6.1%). Meanwhile, cash and term deposits increased by only 0.9% in the quarter. This is in contrast to the two previous quarters where most of the growth in financial assets came from cash and deposits.
Over the year ended June 2001, managed fund assets (which includes unit trusts and group investments) rose $1.4 billion in value or 3.6%. In comparison, the amount of cash and term deposits held at financial institutions rose by $2.0 billion (4.9%), while the value of housing declined $0.9 billion (0.6%).
"Despite the decline in overall household net worth, the continued improvement in financial net worth highlights to households the importance of diversifying their assets outside of housing," said Graham Rich, Morningstar Chief Executive Officer and Publisher. "It’s particularly encouraging to observe net new savings into retail managed funds of $312 million for the quarter and $1.2 million for the year during a period of market volatility such as we’ve seen in the past year. These households are thinking long term."
Net wealth ratios
For the first time this quarter, net wealth ratios have been calculated in the HSI. The chart below shows the average net worth per New Zealand household since the beginning of the 1990s. Today, on average, each New Zealand household has a net worth of $148,300, representing an increase of over $18,000 since March 1990. However, in recent years average household net wealth has been declining, falling by over $16,000 from its peak in September 1997.
Net worth per capita and net worth per adult have also been calculated for the first time this quarter. As at the end of June 2001, net wealth per capita stood at $52,800 and net wealth per adult stood at $68,300. Movements in net wealth per capita and net wealth per adult show similar changes to net wealth per household.
(Embedded image moved to file: pic12514.pcx) “These new net worth series are useful tools for individuals and households to benchmark their financial performance against,” commented Alex Sundakov, director of NZIER. "Over time, we hope households will be able to use these indicators to benchmark their wealth accumulation performance in much the same way as financial analysts and fund managers use sharemarket indices such as the NZSE40."