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Young Spaniards are losing their ability to accumulate wealth

A Bank of Spain survey found that only 32% of families with a head of household under 35 years of age are homeowners. More than a decade ago this figure was 69%. The Great Recession and Covid pandemic still have lingering effects on personal finances

Jóvenes vivienda
A group of young people look at the window of a real estate agency in Madrid, last February.JUAN BARBOSA
Antonio Maqueda

The Bank of Spain has warned that young people now have less capacity to accumulate wealth, and that this may leave them in a more vulnerable situation in the face of future economic shocks. The Survey of Household Finances 2022, which the central bank released on Tuesday with data going back more than 20 years, compared the evolution by age of household assets once debts have been subtracted. The overall net wealth of Spaniards increased by 3.7% between 2020 and 2022. This data point contrasts with the 26% drop suffered by young households.

The figures, based on a survey of 6,385 households with additional information from the employment agency and tax authorities, show that the consequences of Spain’s real estate bubble at the beginning of the 21st century are still lingering. Compared to 2008, and adjusting for inflation, the average wealth of Spanish households once debts have been subtracted has still not recovered: the median is €140,000 ($152,000) compared to more than €220,000 ($239,000) registered 14 years ago. But in households with a head under 35 years of age, the decline is much more steep: this figure has plummeted from around €100,000 ($108,700) to €20,000 ($21,700). Hence, the Bank of Spain warns that young people are losing saving capacity: “For young households, a lower accumulation of median net wealth is observed in relation to the accumulation observed by previous cohorts,” it says in its report.

At age 30, the median net worth is now almost zero. This is happening for various reasons: on the one hand, the bank attributes this trend to the limited ability of young generations to take out a mortgage. Prices complicate access to housing. And income makes saving even more difficult: corrected for inflation, between 2019 and 2021 the income of groups under 44 years of age has dropped. On the other hand, from 45 years old and upwards, income increased in all age groups.

The Bank of Spain explains that employment is a determining factor in these results. Between 2016 and 2019, the incomes of young households improved with the increase in employment. But the Covid pandemic changed that. While overall household incomes withstood the pandemic well, it seems that young households were somewhat left behind, probably because they had more temporary contracts and had accumulated fewer rights to unemployment subsidies. And these are the young people who have actually been able to move out and form a home. More than half of those born around 1988 continue to live with their parents.

The inverted U

The usual trajectory of wealth is that it increases with age until a point at which one stops working due to retirement, and it begins to decrease. It’s a kind of inverted U. Older generations also had the advantage that they bought homes when prices were lower and benefited from their enormous appreciation. The real estate market cycle is setting the trend for everything that has happened to wealth for generations. And it is helping the older generations obtain much greater wealth than the younger ones. The bursting of the property bubble greatly affected the assets of those born in the 1960s and 1970s, flattening that inverted U and causing wealth loss to occur before retirement. The youngest have not even been able to be part of this process of wealth accumulation because only a third of them have accessed housing.

Older Spaniards are maintaining higher levels of wealth than the rest, partly due to a Social Security system that pays out a very high percentage of the last salary as a pension, compared to the rest of Europe.

The figures show that there is a high generational component in inequality in Spain and that an ever-widening gap is being created. This is the case with the percentage of households that own a home. Only 32% of families with a head of household under 35 years of age are homeowners. More than a decade ago this figure was 69%. In clear contrast, households whose heads are over 55 years of age have ownership rates of 80%. And more than half of them own a second home, a garage or land. Inheritances may also have played a role in this accumulation of wealth by older Spaniards.

In short, the scars of the 2008-2014 crisis are persistent. While the expected trend was for the new cohorts to surpass the following ones in wealth as they reached the same age, this phenomenon broke down with the Great Recession.

The good news is that debt is falling significantly, in part due to the public effort between 2019 and 2021 to support household incomes. The survey concludes that the blow of Covid has been successfully alleviated. What it does not reflect are the full effects of the inflationary spiral that followed, and which be reflected in the next survey.

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