A recent international report from the OECD economics think-tank has made some worrying statements.
- Middle-class families are seeing their incomes stagnating as they are squeezed by the ultra-rich taking a bigger slice
- The middle-classes are being ‘hollowed out’, with declining chances of rising prosperity and job insecurity concerns
- The OECD believes there will be political consequences for Western countries
- It says middle-classes have been the “bedrock of democracy”
We thought we would do own own analysis at Glint on the growing wealth disparity. The analysis is using UK data, but it is likely to be similar the world over.
The Sunday Times Rich list, updated and published every April since 1989 is a list of the 1000 wealthiest people or families living in the UK, ranked by estimated net wealth. To have ever been included in this list, you have clearly attained the status of ‘rich’ by observable metric comparisons. To simplify the analysis of easily obtained data, we have taken the top 12 people on the list in the last 10 years, starting soon after the global financial crisis. As you can see, their wealth has increased every year since, with a cumulative increase of over 200%, approaching an annualised increase of 12% a year. The rich certainly are getting richer!
(NAV-Net Asset Value, base=100, start 2009)
In comparison, the increase in wealth of the middle-classes shown by average UK wages and the lower-classes shown by the UK minimum wages is a far cry from the rate of growth seen by the rich, with barely a 20% increase in the last decade. But, it gets even worse than that. Unfortunately, consumer price inflation has often outpaced wage inflation and the real (nominal less inflation) wage changes over that time are actually falling. The middle-classes and the lowest paid workers are barely keeping their heads above water. They are indeed, getting poorer.
The rich, either through inherited or self-made wealth, typically hold their assets in bonds, equities, property and private businesses. Since the ‘last’ great financial crisis of 2008, the central banks have responded to ‘save the system from collapse’, by dropping interest rates to zero and embarking of the biggest monetary experiment of all time with Quantitative Easing’, money printing by another word. What has it achieved?
Well, for one, it has put the wealth of the rich’s asset classes at nose-bleed valuation levels. Bonds, equities, property and private businesses are at very high metrics of earnings, never seen before in history, while inflation and lack of wage growth has seen everyone else struggle to keep up.
Everyone would like to be able to save for a rainy day and see those savings grow but it does seem out of reach for most workers. While the UK savings rate has some correlation to the level of deposit interest rates, encouraging savings with returns, we believe the main reason that the UK savings rate has fallen so much is down to the declining amount of excess income as shown by the real wage declines. So not only are you barely keeping up with cost of living, but you are not able to save.
At Glint, we have long believed that saving regularly in gold can benefit anyone’s pot, whether you are rich or poor. Over the last 10 years, the chart below, shows the appreciation of the gold pot, relative to the meagre return of the cash deposit pot. Saving a regular amount into equities and bonds is reasonably accessible to most middle-classes, but the current valuations make this much less attractive than in in the past. Gold as an asset class for saving is far cheaper in comparable metrics and Glint has made it incredibly easy to do.