To what extent do the wealthy have high incomes too?
To what extent wealth inequality contributes to differences in standard of living between households depends on the other economic resources that are available to households. The clearest example of such an alternative economic resource is income. If many households with low income are wealthy, differences in the standard of living between households will be smaller as compared to a situation where wealth is concentrated among those who also have a high income. Figure 1 below divides all households into five groups based on their household income in 2002. Household income is the sum of all income that household members received in a year. Income primarily comes from earnings in the labor market or through activities of the self-employed. This sum of income is subsequently adjusted for the (square root of) total number of household members to make households of different sizes more comparable in terms of their economic needs.
The first bar (left) indicates the households that are among the 20% of households with the lowest income in 2002, and the last bar indicates the richest 20%. Because saving from income is a major way toward accumulating wealth, it is not surprising that households with higher incomes also have more wealth. Almost half of the households in the highest income group have more than 300.000 euros of wealth, and very few high-income households have wealth below 25.000 euros. Among the households with the least income, there are practically no millionaires and around 20% of households have no or negative wealth. Hence, on average, the more income the more wealth a household has. This means that jointly looking at income and wealth gives a more unequal picture than the picture that would arise once considering only one component.
Figure 1. Absolute levels of wealth according to household income in 2002
It has to be noted that there are many households with low incomes that do have a reasonable or considerable amount of wealth. Around one-third of households with low income (bottom 20%) has more than 100.000 euros of wealth and another third between 25.000 and 100.000 euros. Even though this wealth probably consists of the value of the residence owned by these households, this housing wealth likely provides benefits in terms of reduced housing costs. Besides, in situations of last resort, the residence can be sold to access this wealth. Therefore, wealth is likely to be an important economic resource for many households with low income.
Figure 2 below shows how this relationship between income and wealth looked like in 2017. It becomes clear that wealth has become more strongly related to income over time. Among households with the highest incomes, the share of millionaires increased considerably, whereas the share of households with no or negative wealth grew for the group of households with the least income. If wealth indeed helps the households with the lowest incomes to avoid severe economic difficulty, the role of wealth as an alternative economic resource for households with low income is eroding over time.
Figure 2. Levels of Wealth According to Income in 2017
Discover more about wealth, its distribution across Spanish households, and the characteristics of individuals living in households with little and plenty of wealth by clicking on one of the buttons below.
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Income Education and Social Background
This project is financed by the “la Caixa” Social Research Call 2019 (SR0403-WINEQ)
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