Net Financial Assets of Households and Governments
In the fourth quarter of 2021, households increased their net financial assets by EUR 2.3 billion, primarily through investments in quoted shares and mutual funds. Their net financial assets declined slightly in other areas, including deposits and debt securities. However, while holding gains helped to increase the overall level of household financial assets, the total amount of household debts also increased. This increased the household debt-to-income ratio by 1.4 percentage points.
According to the System of National Accounts (SNA), “asset” is an economic resource that serves a function in a company. Its definition includes: “store of value or benefit accruing over time”. In addition, assets can be either produced or non-produced. For example, a company’s assets may include natural resources, purchased goodwill, intangible intellectual property, and other forms of marketing assets.
In the United States, net wealth reached its highest level ever in Q2 of 2015, with a value of $80 trillion. Almost half of all household net worth is made up of real assets, while net financial assets include deposits, equity, and pension assets. While the distribution of these assets differs across countries, the majority of households hold real estate or buildings.
The rapid growth in net financial assets and liabilities has been in line with the rapid growth of prices and asset values. The total amount of financial assets and liabilities held by households and governments has surpassed the total amount of new investment. For example, the value of financial assets and liabilities held by households and governments has increased by nearly five times the total amount of net new investment since 1950.
As of 2010, the net worth of the world has tripled since 2000. Global net worth is now estimated at $510 trillion. There are large differences among countries and households within countries, however, with per capita net worth ranging from $46,000 in Mexico to $351,000 in Australia. In contrast, net worth per capita is nearly four times higher in China, while per capita net worth in the United States is nearly eight times higher.
Increasing market value of a company’s intangible assets also reflects an increase in its valuation. In the United States, for example, market-to-book ratios have reached one-time GDP. However, this value does not necessarily reflect its value over time, as it is attributed to market conditions and obsolescence.
In recent decades, net worth growth has tracked global GDP growth. However, in the run-up to the savings-and-loan crisis, and in Japan during the subsequent asset bubble and banking crisis, net worth growth diverged from this pattern. The net worth growth in both countries was about 50 percent higher than the long-run average. However, in the early 2000s, real estate prices skyrocketed. Thus, the world’s economy has been undergoing a paradigm shift and is seeking new sources of wealth.