70% growth in net financial wealth of households
IRISH HOUSEHOLDS saw their net financial wealth soar by 70 per cent between March 31st, 2009, and the end of 2010, according to the Irish Central Bank.
On average, an Irish person was worth €22,125 on December 31st last year. Two years earlier, that figure was €14,258. The strong recovery in financial wealth over 2009-10, however, was not sufficient to offset the larger deterioration in the previous two years.
Household financial wealth reached an all-time high at the end of 2006. Then, per capita net financial wealth stood at more than €30,000. Over 2007-08, households saw more than half of their net wealth evaporate.
These Central Bank numbers do not include property values, but do include borrowings used to buy property, so they understate the true wealth of Irish households.
Estimates published by the Central Bank in its quarterly bulletin show housing assets in the third quarter of 2010 were worth more than all financial assets combined, at more than €300 million. Irish households’ aggregate financial assets were worth just over €293 billion at the end of 2010.
Of these, about 40 per cent are held in the form of bank deposits and hard currency. A similar percentage is held in pension and insurance funds. Company shares account for most of the remainder. The figures show the recovery in pension and insurance fund values in 2009-2010 was the main cause of households’ greater wealth. Household pension and insurance funds were valued at €121 billion at the end of last year, an increase of more than a fifth since the recent low point, reached in the first quarter of 2009.
Most of these funds are invested abroad and not exposed to the weak Irish economy. The recovery in international share prices since the worst of the crisis has driven their improved position.
Direct household ownership of company shares has traditionally been less diversified than investments of their pension funds. Retail investors have usually held shares in Irish firms. Reflecting the large fall in the Irish stock exchange, the value of shares owned directly by households stood at €46 billion at end-2010. This is more than a third down from the high point of just under €70 billion at the start of 2006.
The strong improvement in household net financial wealth in 2009-10 was also driven by a large reduction in liabilities, mostly in the form of loans from banks.
Household liabilities fell by €18 billion between the first quarter of 2009 and the end of last year. They stood at €194 billion at the end of December. This is the result of households rapidly paying down debts and the limited availability of new credit.
Yesterday’s figures also include balance sheet positions of the Government, financial institutions and companies. Among most notable developments was an an unprecedented fall in company bank deposits in the final quarter of 2010 compared to the third quarter. The deposits fell almost 50 per cent in a single quarter. This likely reflected concerns over banking system stability.