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This chapter documents the trends in the life-cycle profiles of net worth and housing equity of older persons. During the 1993-2004 period, older households' net worth rose significantly, yet net worth grew by more than housing equity, in part because other assets also appreciated at the same time. Moreover, the younger elderly offset rising house prices by increasing their housing debt and used some of the proceeds to invest in other assets. The chapter considers how much of their housing equity older households could actually tap using reverse mortgages. It shows that this fraction is lower at younger ages, such that young retirees can consume less than half of their housing equity. Their results imply that consumable net worth is smaller than standard calculations of net worth.

This study discusses issues that arise in the comparison of estimates of wealth holdings and their distribution in the light of data for selected OECD countries. This chapter finds large differences in the level of wealth, depending on whether the mean or median levels are compared across countries. Sensitivity of wealth estimates to survey design are evident in that, even within countries, the ranking of two different surveys depends on how central tendency is measured. Comparisons of the composition of household wealth based on secondary data, as well as the distribution of net worth, are difficult because comparable data are scarce. The evidence suggests that country ranking by level of net worth inequality is similar to that by income inequality, and that net worth inequality has tended to increase across the countries we examine.

This chapter focuses on how net worth affects households' current economic well-being with the purpose of developing statistical measures to monitor the social situation of a community. The chapter is organized as follows. The first section provides an introduction, before the second section outlines a conceptual framework for including wealth into poverty analysis and reviews the income-net worth and asset-poverty measures. The third section considers in greater detail the application of the income-net worth approach. The fourth section briefly describes the data while the fifth section presents comparative results from applying the two approaches. The final section provides an assessment of these alternative approaches and draws some conclusions.

A balance sheet indicates the state of a business as on a particular date. Along with a profit and loss account it tells us how the funds flowed through the business during a given period. This chapter discusses the trial balance and treatment of closing stock, the classification of accounts and the balance sheet and its format. The balance sheet is a total concept which helps the banker not only to see if the loan stands secured but also to examine whether the value of the business is increasing.

The integrated macroeconomic accounts (IMAs), produced jointly by the Bureau of Economic Analysis (BEA) and the Federal Reserve Board (FRB), present a sequence of accounts that relate income, saving, investment in real and financial assets, and asset revaluations to changes in net worth. This paper first provides some background information on the IMAs and on their construction. Next, it discusses the usefulness of the IMAs, focusing for instance on the evolution of household net worth and its components, a set of series that has appeared frequently in discussions of the causes and effects of the recent financial crisis. It also discusses some of the challenges associated with integrating nonfinancial and financial data sources, that is, the current and capital accounts statistics from BEA’s national income and product accounts (NIPAs) and the financial account statistics from FRB’s flow of funds accounts (FFAs). In the final section, this paper discusses future plans for improving the IMAs, including a proposed framework and methodology for breaking out the financial business sector into three subsectors: 1) central bank, 2) insurance and pension funds, and 3) other financial business.

The chapter first presents an overview of the pertinent literature on inheritances and gifts. Both theoretical and empirical literature on the subject are reviewed. In the second part, an overview is presented of trends in household wealth from 1983 to 2010. This will serve as a backdrop for the remaining chapters of the book. The chapter also introduces the concepts of defined benefit pension wealth and Social Security wealth and considers changes in these components as well. The chapter reports an extreme drop in median household net worth over the Great Recession and a sharp rise in wealth inequality

The chapter makes use of the Survey of Consumer Finances (SCF) to analyze the three major issues of the book. The first is whether wealth transfers grew or declined in importance over the period from 1989 to 2010. I find that there was only a modest (but not statistically significant) uptick in wealth transfers over these years. The second issue is whether inheritances and other wealth transfers led to an increase in overall wealth inequality over these years. Instead, I find that wealth transfers actually lowered wealth inequality rather than raising it. A third concern is whether the inequality of wealth transfers themselves increased or fell over these years. In this regard, I find no trend over the period, neither upward nor downward

Researchers use different types of household balance sheet data to study different aspects of lifecycle saving and wealth accumulation behavior. Macro data from the Flow of Funds Accounts (FFA) are produced at a quarterly frequency and are available in a timely manner, but they can only be used to study the behavior of the household sector as a whole. Micro data from the Survey of Consumer Finances (SCF) are available every three years and only with a lag, but they can be used to address questions that involve differences in behavior over time and across various types of households. Despite the very different approaches to estimating household net worth, the two data sets show the same general patterns of wealth changes over the past twenty-five years. Areas where the FFA and SCF diverge in aggregate levels—in categories such as owner-occupied housing, non-corporate equity, and credit cards—may be explained by methodological differences in the production of the data. Those differences do not fundamentally alter one’s perception of household wealth dynamics in the period leading up to and following the Great Recession.

This chapter provides new evidence suggesting that transfer wealth accounts for approximately 20 to 25 percent of current household net worth, using the 1998 Survey of Consumer Finances. This figure is calculated in two ways, both of which yield quite similar results: direct survey evidence, and estimating of the flow of transfers in 1998 using an improved methodology that accounts for the correlation between wealth and mortality and converting this into a stock of transfer wealth. In addition to the methodological improvement, new estimates are useful because the composition of household wealth has changed substantially over the past several decades. Second, the chapter examines the heterogeneity of the size of transfers received and expected. It demonstrates that while in aggregate, transfer wealth does not appear to be as large as some prior estimates suggest, it is nonetheless quite important for a small subset of the population.

There has been much recent research on the world distribution of income, but also growing recognition of the importance of other contributions to well‐being, including those of household wealth. Wealth is important in providing security and opportunity, particularly in poorer countries that lack full social safety nets and adequate facilities for borrowing and lending. This chapter finds, however, that it is precisely in the latter countries that household wealth is the lowest, both in absolute and relative terms. Globally, wealth is more concentrated than income, on both an individual and a national basis. Roughly 30 per cent of world wealth is found in each of North America, Europe, and the rich Asian‐Pacific countries. These areas account for virtually all world's top 1% of wealth holders. On an official exchange‐rate basis, India accounts for about a quarter of the adults in the bottom three global wealth deciles, while China provides about a third of those in the fourth to eighth deciles. If current growth trends continue, India, China, and the transition countries will move up in the global distribution, and the lower deciles will be increasingly dominated by countries in Africa, Latin American, and poor parts of the Asian‐Pacific region. Thus wealth may continue to be lowest in areas where it is needed the most.

This chapter presents an agent-based model for studying the interactions between the financial system and the real economy. This model also contributes to enriching our understanding of potential vulnerabilities and the paths through which economic crises can propagate across economic and financial networks. Combining an agent-based model with network analysis can help to shed light on how a failure in a firm propagates through dynamic credit networks and leads to a cascade of bankruptcies.

Chapter 5 focuses on producers’ net worth. It joins a large strand rooted in the financial literature, which points out that under asymmetric information, producers need own equity to obtain credit. Incorporating this assumption yields scenarios with endogenous borrowing limits and shows that small variations in credit requirements have large macroeconomic consequences. A second theme concerns an unresolved problem of general equilibrium models. These determine equilibrium prices from decisions of producers and consumers who are ostensibly aware only of market prices and their own characteristics, i.e., technologies and preferences. However, consumers must also know current profits because these enter their budget constraints. As profits are determined in equilibrium, a logical circle emerges. Stock manias can be interpreted as situations where consumers overestimate profits; conversely, stock market crashes may reflect underestimations of profits. The text shows that misguided profit expectations as such do not have the expected impacts on economic activity.

The final chapter first presents a summary of the principal findings of the book. Second, it attempts a reconciliation between direct survey evidence and the simulation results. Third, the chapter considers the relation between wealth transfers and overall wealth trends. Fourth, it then takes up the question of whether there will be an inheritance “bust” instead of a “boom.” Fifth, the chapter considers what will happen to the inequality of wealth transfers in the future. Sixth, in the last section, the chapter looks into an “inheritance tax” as opposed to an estate tax and argues that the former creates a more equitable inheritance taxation system. Simulation results are also provided of the potential revenue gains from an inheritance tax and its effect on overall wealth inequality.

Chapter 5 makes use of the so-called indirect method discussed in the literature review to analyze the role of inheritances and other intergenerational transfers on the wealth accumulation of households. A simulation model is developed to calibrate the quantitative importance of intergenerational transfers and other sources of household wealth over the period from 1983 to 2007. Two issues receive particular attention. First, for individual age groups, what are the relative contributions made to wealth accumulation of (i) savings out of income, (ii) capital gains on wealth, (iii) inheritances, and (iv) inter-vivos transfers? Second, what is the relative importance of intergenerational transfers versus savings in the lifetime accumulation of wealth? The major finding is that over the lifetime, about one-third of household wealth accumulation can be traced to household savings, another third to inheritances, and the remaining third to inter-vivos transfers.

This chapter takes an economic view of the investment behavior of high net worth individuals (HNWIs), including: the psychological aspects of private wealth and the practice of wealth management, the current trends affecting the players and markets, and empirical findings on wealth creation and distribution that have fueled policy debates. As the chapter shows, wealth concentrations and scarcity of skills have attributed to institutional advantages for HNWIs and the highly skilled, including higher returns on physical and human capital investments. Besides achieving financial returns, HNWIs want to use their private wealth to have a social impact. Wealth managers respond to the attitude and behavior of HNWIs by shifting the focus from investment products and transactions to holistic investing and goal-based wealth management.

The chapter makes use of the Panel Study of Income Dynamics (PSID) over years 1984 to 2007 to analyze the three major issues of the book. The PSID has data on inheritances only. Results are very similar to those based on the SCF. First, I could find no evidence that inheritances were growing in importance over time. Second, results with the 1984 PSID, which has data on inheritances received over the whole lifetime, agree with those using the SCF that inheritances actually tend to reduce overall wealth inequality. Third, as in the case of the SCF, there is no detectable evidence that the inequality of inheritances either increased or declined over the years from 1984 to 2007. The chapter also provides an econometric estimate of the substitutability between inheritances received over the preceding five or ten years and household wealth accumulation. Our preferred estimate for this parameter is .8

A significant body of research documents the volatility of household income and assets over the life cycle. The US bankruptcy system is among the policy interventions designed for such disruptions, and several million people pass through this system every year. Measures of homeownership, occupational prestige, and education indicate that they generally are middle class but have very low incomes when they file. This chapter examines the literature on medical problems among bankruptcy filings. It then explores the credit and debt management choices made by financially strapped households before they take the ultimate step of filing for bankruptcy. It focuses particularly on the management of medical bills not covered by insurance. The authors use data from the 2007 Consumer Bankruptcy Project, a nationally representative data set based on court records, written questionnaires, and telephone surveys.

Growth has suffered from a rise in hurdle rates, due to the change in management incentives, probably amplified by misleading publicity about the cost of equity capital, which is commonly claimed to be a multiple of the real cost. The bonus culture encourages managements to misrepresent RoEs, so in bad times companies publish abysmal rather than merely bad profits, with the result that subsequent profits are overstated. The swings from understated to overstated increase published profit volatility. After being similar for fifty years, published profits have since 2000 become four times more volatile than national account profits. Claims that low investment and high margins are due to increased monopoly are shaky. The bonus culture is a better explanation as, among other things, it also accounts for the different levels of investment by quoted and unquoted companies and for the increased volatility of published profits.