The Central Bank of Ireland published a Research Technical Paper (RTP) written by David Horan, Reamonn Lydon and Tara McIndoe-Calder, entitled “Household wealth: what is it, who has it, and why it matters”. The RTP presents the results from Household Finance and Consumption Survey (HFCS) 2018, including key developments since the last survey, in 2013.

The distribution of wealth, incomes and spending is crucial to understanding the differential impacts of economic shocks and recoveries across households and how their responses to changes in the economic environment affect macroeconomic aggregates.

While the survey was carried out prior to the outbreak of COVID-19, and represents changes in household wealth and wealth inequality between 2013 and 2018 only, the HFCS data provides insight into issues relevant to the assessment of the economic impact of the pandemic on Irish households in 2020. The data gathered for the HFCS highlight the improved financial position and resilience of households prior to the COVID-19 crisis than by comparison to the lead-up to the 2008 financial crisis.

Data in the RTP shows household net wealth grew by over €76,000 (74%) for the median household to €179,200 between 2013 and 2018. Net wealth growth was driven in the main by house price developments and households paying down mortgage debt.

Inequality, as measured by the Gini coefficient, fell between 2012 and 2018, indicating that by the end of the period covered by the RTP there was a more equal distribution of wealth. A key driver of this was the decline in negative equity, which fell from 33% of mortgaged households in 2013 to 4% in 2018. Median gross household income surpassed its previous peak in 2007, reaching €47,700 in 2018, an increase of 18.5%.

The RTP also shows the proportion of households with some net liquid assets increased from 69.1% to 72.6%. The median value of net liquid assets had increased from €2,000 (5.1% of annual income) to €3,000 (6.4% of income) between 2013 and 2018.

Debt-to asset and debt-to-income ratios declined during the period covered by the RTP and households’ financial buffers (liquid savings net of debt) increased. The percentage of income used for repaying debt had also fallen since 2013, primarily due to rising incomes. Overall households in 2018 were less likely to say they were credit constrained compared to 2013, however one-in-eight households report having expenses greater than their income.