the emergence of the ‘mass affluent’ - inscape · 2.1 basic characteristics of the ‘mass...

The Emergence of the ‘mass affluent’

A report by The Future Foundation

for Inscape

March 2001

Prosper: The Emergence of the ‘mass affluent’

the future foundation 1

Contents:

page

Executive Summary------------------------------------------------------ 2

Part 1: The Emergence of the ‘mass affluent’ ------------------ 4

1.1 Definition of terms and introduction to sources of data - 4

1.2 The emergence of the ‘mass affluent’ ---------------------- 5

1.3 The distribution of wealth ------------------------------------- 8

1.4 The sources of financial wealth ----------------------------- 15

1.5 The contribution of the ‘mass affluent’--------------------- 20

Part 2: Who are the ‘mass affluent’? ------------------------------ 24

2.1 Basic Characteristics of the ‘mass affluent’ --------------- 25

2.2 The lifestyles of the ‘mass affluent’ ------------------------- 36

2.3 The values and opinions of the ‘mass affluent’ ----------- 43

2.4 Summary--------------------------------------------------------- 53

Part 3: The Future of Wealth in the UK -------------------------- 54

3.1 The future of wealth in the UK ------------------------------- 54

3.2 Drivers of wealth generation and distribution revisited -- 54

3.3 Forecasts of wealth levels and distribution ---------------- 57

3.5 Summary and conclusions ------------------------------------ 64

Inscape: The Emergence of the ‘mass affluent’

2

Executive summary The term financial wealth in this study refers to all privately owned liquid assets – current and deposit accounts, stocks and share holdings and options, all savings accounts, all certificates of deposit and gilts, readily convertible commodities and all cash holdings. Wealth in this case would not include illiquid assets such as land & homes, other tangible assets pensions and life assurance/insurance policies.

The emergence of the ‘mass affluent’ Household net financial wealth has grown dramatically in the last twenty years, by a factor of nine in current prices and by a factor of four in constant prices. Privatisations, building society de-mutualisations, stock market appreciation and increased levels in household savings have helped this growth. The distribution of financial wealth is skewed heavily in favour of the wealthiest twenty percent of individuals. The financial wealth of the top decile (10%) is over five times that of the ninth decile, thirteen times that of the eighth and twenty-six times that of the seventh. As financial wealth increases across the population, there is proportionately greater use of tax-exempt savings products and investment unit trusts which have generally higher investor yield than the deposit accounts and national savings products that are more popular with the lower wealth groups. The key contribution the ‘mass affluent’ have made to the well-being of the economy has been through their savings levels. By helping to stabilise the economy by saving more and spending less, the inflation rate has been lower and with it interest rates. Borrowing for business investment has been cheaper and repayments of the national debt have been lower.

The ‘mass affluent’ – who are they?

Two-thirds of those with £50,000 or more in liquid assets are men. 86% are aged over 45, with 38% aged 65+. 46% are retired, 44% in work, and the rest unemployed or not working for other reasons. More than half are, or were in professional or managerial occupations, whereas only 7% are or were from semi- or unskilled manual occupations. Seven in ten are married, with the rest mainly widowed or never married. More than half live as a couple with no children in the house. The ‘mass affluent’ report better health than average, more energy, greater job satisfaction and greater satisfaction with every aspect of life. Perhaps this should not surprise us, as they work fewer hours (adding together paid work and housework) than their less-well-off counterparts, significantly so in the case of women aged between 45 and 64. The ‘mass affluent’ tend to have more leisure time, with only a third in full-time jobs. However, they feel under more time pressure than their counterparts in the not-so-wealthy population because of their active lifestyles. They go to the cinema, concerts and theatres 50% more often than people of the same age, and eat out more than twice


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as often. They are members of twice as many social and interest groups as people with less than £25,000. The ‘mass affluent’ have generally pro-business attitudes. But they are cynical, demanding, and in some ways reluctant consumers. The ‘mass affluent’ would rather spend their money on leisure than on durables, are keener on government regulation and are more concerned than most about the environment. Although the ‘mass affluent’ tend to be older, and a fairly conservative group in some respects, they also manage to be at the cutting edge of some emerging cultural trends. They are keen on self-improvement and self-fulfilment, so they keep themselves fit and healthy, and believe that education is important in its own right. They are more individualistic than most, but they are also altruistic, doing more than twice as much voluntary work as people of equivalent age. Not surprisingly, the ‘mass affluent’ are much more likely to think that everyone should save up a bit, and also much more likely to say that they like to plan ahead.

The Future of wealth in the UK

The financial wealth of individuals is forecast to increase by an average 4.0% in real terms and 6.7% in nominal terms annually over the next five years. This is slightly slower than the growth shown over the last five years but is comparable to the performance of the first half of the 1990s. The main reason for this marginal slow down in the rate of financial wealth accumulation is that we are not expecting another bull-run on the London stock market. However disposable income growth and savings rates are expected to remain as high as they have been in recent years. The factors determining wealth distribution – world trade, labour market deregulation, self-employment, executive stocks and options, the technology entrepreneurs, taxation and attitudes to savings – will in combination act to make the skew in wealth distribution more acute. Their impact will increase the share of wealth for the top twenty percent, but their effect will be less intense than it has been over the last five years. According to our percentile financial wealth forecasts, around 6% of individuals now have £50,000 or more in liquid assets, and by 2005, 8% will have this amount. Around 11% of individuals now have over £25,000, and around 15% will have this amount in 2005, an increase of just over a third. These represent substantial increases over a relatively short period of time.


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Part 1: The Emergence of the ‘mass affluent’

1.1 Definition of terms and an introduction to sources of data Before the presentation of any analysis, the terms ‘wealth’, ‘financial wealth’, and ‘mass affluent’ require precise definition and some explanation. Private wealth is measured in the UK with perhaps more precision than virtually anywhere else in the world. This is mainly because of the British affinity for home-ownership and private pensions, two industries that are closely regulated; London’s importance as a world financial centre, another source of regulation; and the efforts of the Inland Revenue Service in securing capital gains and inheritance taxes. However, UK citizens are not required to declare their wealth levels in the way that they have to reveal, on an annual basis, their personal incomes. For wealth itself is not directly taxed; it is the income from wealth – interest, dividends and profits from assets – that are subject to income and capital gains taxes. The only regular enquiry into personal wealth holding is through the Inland Revenue Service’s inheritance taxation. This presents obvious difficulties in extrapolating the wealth profile of the dead over the living. There have been surprisingly few regular large-scale quantitative research exercises by either government departments or academic institutions into the levels of wealth in the UK and its distribution among individuals. Definition of ‘financial wealth’ The term ‘financial wealth’ in this study refers (unless stated otherwise) to all privately owned liquid assets. These would be current and deposit accounts, stocks and share holdings and options, all savings accounts (TESSAs, PEPs, ISAs etc), all certificates of deposit and gilts, readily convertible commodities (gold, diamonds etc) and all cash holdings. Wealth in this case would not include illiquid assets such as land & homes, other tangible assets (cars, paintings etc) and pensions and life assurance/insurance policies. While these illiquid assets are undoubtedly the major source of wealth for much of the population, their lack of ready convertibility into cash makes them irrelevant to the purposes of this study. Data Sources Two independent sources – the British Household Panel Survey (1995) and the Institute for Fiscal Studies’ analysis of National Opinion Polls’ Financial Research Survey (1997/98) – have produced very similar datasets of both the level and distribution of financial wealth. We have mostly used the BHPS for our analysis. This survey has been carried out by the Institute for Social and Economic Research at the University of Essex and has been sponsored by the Economic and Social Research Council. It has provided us not only with greater ease of access to the raw data but also the value of exploring its wealth-related questions in combination with questions on broader lifestyles, attitudes and interests. The NOP-FRS has provided an extremely useful control mechanism and ‘second opinion’ for much of the preliminary analysis. Definition of the ‘mass affluent’ Using the 1995 BHPS it has been possible to divide the population into percentiles according to financial wealth. This percentile analysis has shown that 7% of individuals have financial wealth to the value of £25,000 and 4% have wealth of


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£50,000. Unless stated otherwise, the ‘mass affluent’ refers only to those with over £50,000 in financial wealth. 1.2 The emergence of the ‘mass affluent’ The level of financial wealth held by UK households has increased by dramatic proportions in the last twenty years. Chart 1 shows that the level of financial wealth held by individuals increased in nominal terms from £213 billion in 1980 to £2,072 billion in 1998, the latest available data. This represents a ninefold increase equivalent to an average annual change of 13.4%. In constant (1995) prices there was a fourfold increase in financial wealth equivalent to an average annual increase of 7.9%. The comparable rate of growth in economic activity (GDP) over the same period was 2.4%, and for household real disposable incomes, 2.7%. Chart 1: Households’ net financial wealth, 1980-98

However, the process of financial wealth accumulation has been far from steady or consistent over this period. The chart below shows the annual percentage increases over this period in the store of net financial wealth, corrected for the effects of inflation.

© the f u t u r e foundation

Households’ net financial wealth, 1980-98

0

2 0 0

4 0 0

6 0 0

8 0 0

1 , 0 0 0

1 , 2 0 0

1 , 4 0 0

1 , 6 0 0

1 , 8 0 0

2 , 0 0 0

2 , 2 0 0

1 9 8 0 1 9 8 2 1984 1 9 8 6 1988 1 9 9 0 1992 1 9 9 4 1 9 9 6 1998

Current prices

1995 prices

Source: National Statistics/The Future Foundation

£ billion


6

Chart 2: Households’ net financial wealth, 1980-98

The high growth rates shown in the early 1980s were the result of high levels of savings and the performance of the London stock market. The economy was moving out of a manufacturing-based recession but the unemployment rate remained high and households were still very cautious in their spending behaviour. The peak in 1986 was mostly attributable to the £5.4 billion British Gas privatisation providing cash windfalls for millions of households. The dramatic decline in growth in 1987 was partly due to the high growth in the previous year but was also the direct effect of the share price crash in October of that year. As the economy over-heated during the ‘Lawson boom’ between 1987 and 1989 the level of inflation doubled from 4.2% to 9.5% and put downward pressure on sterling. Interest rates were increased to control domestic demand and reduce the inflation rate so that the monetary policy priority of the time – to use interest rates and to intervene in the money markets to manage sterling’s ‘shadowing’ of the value of the deutschemark – could be continued. Sterling had been losing value against the deutschemark since the previous peak in 1980/81. Base interest rates increased from an average 9.7% in 1987 to 14.8% in 1990. With the onset of recession in late 1990, and the slight (1.8% according to the FT Industrial Shares index) fall in share values that year, this led to a sharp decline in real disposable income growth and a fall in the level of real financial wealth of 3.0% in 1990. This sharp change in the cost of borrowing together with changes in the international economic environment, lowered inflation expectations in the markets significantly. This had the effect of raising share prices in the very early 1990s – the expected future yields on fixed rate assets (such as bonds etc) became less attractive because of these lower inflation expectations, making shares a better proposition to hold. After the volatility of the late 1980s, share prices showed more solid growth in the early 1990s, adding to wealth levels.


Households’ net financial wealth, 1980-98

-10

-5

0

5

10

15

20

25

30

1 9 8 1 1982 1 9 8 3 1984 1985 1 9 8 6 1987 1 9 8 8 1989 1 9 9 0 1991 1 9 9 2 1993 1 9 9 4 1995 1 9 9 6 1997 1 9 9 8

% change in weal th , 1 9 9 5 p r i c e s

Source:National Statistics, The Future Foundation


7

Financial wealth growth then accelerated in subsequent years, peaking in 1993 at nearly 27% after stock price appreciation reached 17%. The fall in wealth growth in 1994 was mainly the result over the above trend growth in 1993. Wealth growth has since broadly followed the stock market, helped by the building society windfalls, except in 1998 when real disposable incomes saw virtually no growth because of increases in personal taxation and savings levels were reduced in order that households could maintain consumption growth. 1.3 The distribution of wealth The distribution of wealth among individuals in the UK is skewed heavily in favour of the top 20% of individuals. Our two sources of wealth distribution data – the BHPS and IFS analysis of the NOP-FRS – confirm that financial wealth in the UK is dominated by the wealthiest 20% of the population and that vast swathes of the population have virtually no financial wealth at all. Chart 3 shows the distribution of financial wealth in the UK among individuals, classified into deciles according to their financial wealth levels, from these two surveys. The two sources are shown to have captured remarkably similar patterns of wealth distribution despite the BHPS having taken place in 1995 and the NOP-FRS in 1997/98. The only significant difference between the two distributions is the top decile mean values, which the BHPS reports at £62,900 some £12,300 or 24% above the NOP-FRS survey. Chart 3: The distribution of wealth by survey


The distribution of wealth by survey

0.0 0.0 0.0 0 .1 0 .5 1 .4 2.25.1

11.4

50.6

0 .0 0.0 0 .0 0.0 0.2 0 .82.4

4 .6

11 .1

62.9

0

1 0

2 0

3 0

4 0

5 0

6 0

7 0

Leastwealthy

2 3 4 5 6 7 8 9 Mostwealthy

NOP-FRS

BHPS

Mean decile wealth level, £000s, current prices

Source:IFS


8

The most obvious explanation for this discrepancy between the levels at the top of the wealth scale is that the NOP-FRS is a commercial venture. This is more likely to have deterred the very wealthy from taking part in this survey than in the government-sponsored, strictly confidential, academic BHPS. While the NOP-FRS has provided an extremely useful check and control source for the analysis, the detail available from the BHPS and its apparently superior focus on the top end of the wealth scale has made this survey our key source of raw data for wealth distribution analysis. Chart 4: The distribution of wealth – mean and median values by decile

Some key features of this financial wealth distribution are brought out by the chart above showing mean and median financial wealth levels from the BHPS :- v thirty percent of the population have virtually no financial wealth to speak of. The

ten percent of individuals in the fourth decile have just under £50 in financial wealth;

v only thirty percent of the population have financial wealth in excess of £2,500; v the financial wealth of the tenth (top) decile is over five times that of the ninth

decile, thirteen times that of the eighth and twenty-six times that of the seventh; v the median levels of wealth for the deciles are very close to the mean levels. This

would imply that the spread of wealth across each of the deciles is reasonably even. The exception is, of course, the top decile where the median wealth level, at £38,000, is only 59% of the mean wealth level. This implies that the spread of wealth across the decile is far from even and that the top percentiles account for a disproportionate amount of financial wealth, even of this ten percent of group the population;


The distribution of wealth - mean andmedian values by decile

£0 £ 0 £ 0 £47 £311 £901£2,456

£4,798

£11,627

£64,343

£0

£10,000

£20,000

£30,000

£40,000

£50,000

£60,000

£70,000

Leastwealthy

3 5 7 9

Mean decile wealth

Median decile wealth

Source : BHPS


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v the median wealth level for the entire population is £600. That is, half the

population has £600 or less in financial wealth. This skew in the distribution of financial wealth is supported by statistics independently published by the Inland Revenue Service. Chart 5 shows the share of marketable wealth owned by the wealthiest two percent of the population and by the next eight percent. (Marketable wealth, or Series C as it is known, is financial wealth as we have described but includes all saleable assets, including houses. It excludes rights accruing to occupational and state pension schemes. While saleable assets obviously make a significant difference in wealth definition, this third data source nonetheless provides a useful alternative measure to add assurance that the BHPS data is reliably accurate.) While this is a different measure of personal wealth, the history of this ten percent group provides an indication of how the skewness of wealth distribution has changed over the longer term and how the ‘mass affluent’ has emerged as a significant population group. Chart 5: The wealthiest decile’s share of all marketable wealth

The chart shows that the share of marketable wealth owned by the wealthiest two percent of the population fell from 42% in the mid-1960s to 27% in the early 1980s. This share level then oscillated around the 24% level until the mid-1990s when it climbed a little to the 26% mark. The share of the next eight percent of the population saw a much less dramatic fall between the mid-1960s and the early 1980s and has hovered around the 25% level since. So despite some slight resurgence in recent years, the wealthiest 2% of the population did lose some share of total marketable wealth in the 1960s and 1970s but has broadly held its share since.


The wealthiest decile’s share ofmarketable wealth

42 3932

27 24 26 24 24 24 25 23 24 24 24 25 26 27 26 27

2726

28

2725 24

24 25 26 2626 24 23 23

25 25 25 24 25

0

20

40

60

80

100

1966 1976 1982 1984 1986 1988 1990 1992 1994 1996

Owned by next 8%

Owned by top 2%

% of all marketable wealth (Series C)

Source:Inland Revenue Service


10

Measuring the distribution of wealth There are internationally recognised measures of wealth inequality that enable comparisons to be made over time and across countries. The most frequently used measure of inequality is the Gini coefficient. This takes a range of conceptual values, from zero for perfect equality (everyone has exactly the same level of wealth) to unity (whereby one individual owns the entire nation’s store of wealth). The schema below shows how the coefficient is calculated. The horizontal scale shows the population in ascending order of wealth. The vertical scale measures the cumulative percentage of wealth owned by the population. Chart 6: measuring wealth inequality – the Gini coefficient

The diagonal line plots the locus of perfect equality in wealth distribution – each percentile owns one percent of the wealth, so that the final percentile takes the diagonal to the one hundred percent level. The Lorenz curve plots the actual cumulative amounts of wealth owned by the percentiles. The further the Lorenz curve is from the diagonal of perfect equality (and the greater the blue area), the greater the inequality in wealth distribution. The Gini coefficient is given by the ratio of the area enclosed by the diagonal of equality and the Lorenz curve (area A) and the entire area under the diagonal (area A+B). As wealth is transferred from the rich to the poor, the Lorenz curve moves toward the diagonal, reducing the Gini coefficient. Transfers from the poor to the rich lower the Lorenz curve, increasing the Gini coefficient. Chart 7 shows the history of wealth inequality in the UK represented by the Gini coefficient between 1976 and 1996, as calculated by the Inland Revenue Service, again based on marketable wealth. The chart shows variation in the Gini coefficient’s value over a narrow range as the vertical axis indicates. (After all, the distribution of wealth does tend to change slowly in capitalist democracies.) The chart shows that the


Measuring wealth inequality - the Gini coefficient

A

B

Gini = A/(A+B)

Percent ofwealth

Percentage of persons

100

100

Lorenz curve


11

coefficient has varied over this twenty-year period, with the greatest gains after the 1991 recession. The level of inequality of wealth distribution in the UK does appear to have become slightly more acute in recent years. The relative changes are small though, and the distribution of wealth, financial or marketable, appears not to have changed by any great scale during the course of any single year. Chart 7: The UK’s wealth Gini coefficient since 1976

The Gini coefficient is, however, a limited measure of wealth distribution. An important feature of the changes in wealth distribution in the UK over the last thirty years has been the slow but gradual shift in wealth from the super-wealthy to the rest of the top thirty percent of individuals which would include the ‘mass affluent’. In theory, it is quite possible for there to be some movement in the share of financial wealth from the top two percent to the next eight percent, and from them to the next decile without necessarily changing the area under the Lorenz curve (area B in the chart). This area would be lost from the higher percentiles and gained by lower percentiles. This would represent a movement toward a more equal distribution of wealth that the Gini coefficient would simply not pick up. The Gini measure is designed to represent the entire wealth distribution with a single number, and small changes in the distribution among the percentile groups would not be sufficient to alter the overall coefficient. The composition of financial wealth The composition of wealth holdings among the wealth distribution deciles helps to explain why the yield from financial wealth tends to increase with the size of individuals’ wealth holdings. The chart below shows the proportions of wealth held by the deciles in financial product groups, according to data from the NOP-FRS. (The wealth base used is positive wealth without deductions for debt.) The proportionate splits of wealth across the savings products groups reveal a steady progression toward


The UK’s wealth Gini coefficient since 1976

66 66

64

65 65 65

64

65

64

65

64

66

65 65

64 64

66 66

67

65

67

60

62

64

66

68

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996

%



12

more tax efficient and generally higher yield savings products as wealth levels increase. However, because of the skewed wealth distribution, the top two deciles have more absolute wealth in every category than even the eighth decile. Chart 8: The composition of financial wealth, by decile, 1997/98

A key feature of the chart is the proportionate movements in the scale of product group holdings across the wealth deciles. Deposit accounts as savings vehicles increase from 67% of (the very little) wealth of the lowest decile to 84% for the third decile. This scale of proportion is held until the sixth decile after which it falls to just over half. Deposit accounts take a gradually declining proportion of wealth for the subsequent deciles. National savings products also show stark changes in proportionate holdings across the wealth deciles. From taking 31% of the lowest decile’s wealth, this product group rapidly declines in wealth share to just 2% of the fifth decile, then takes around 5% of the subsequent deciles before increasing sharply to 9% of the top decile. The tax-exempt expected yield of the product is probably an attractive source of risk diversification for the wealthiest investors. Privatisation shares (from privatised utilities and de-mutualised building societies) are most popular among the middle deciles (a quarter of the financial wealth held by the sixth) but do not feature among the lower deciles and have limited appeal to the higher deciles. For the latter group this probably follows from the limited offerings to individuals at flotation. Holdings of other company shares show a similar proportional pattern although there is more appeal in the top deciles. Perhaps the most striking contrast across the wealth spectrum is in the holding of tax-exempt savings products and investment unit trusts. Tax-exempt savings products


The composition of financial wealthBy decile, 1997/98

6775

84 80 82

53 50 5045

40

31 187

62

66 5

59

13 4

7 10

25

148

8 6

12 2

3 3

7

10

4

69

0 2 2 3 2

7

16

27

22 18

0 0 1 1 1 2 4 614 18

0

20

40

60

80

100

Leastwealthy

2 3 4 5 6 7 8 9 Mostwealthy

Deposit accounts National savings Privatisation shares

Other shares TESSAs, PEPs Investment unit trusts

% of positive financial wealth

Source:IFS


13

(TESSAs, PEPs, ISAs) do not feature significantly until the sixth decile; the eighth decile holds a quarter of its financial wealth in this form while the top twenty percent hold a slightly smaller proportion, probably because of the legal limits on individual holdings. Investment unit trusts do not feature significantly until the seventh decile, and then take rapidly increasing proportions of holdings up the wealth scale, peaking at 18% for the top decile. Arguably, the bottom two deciles, the next three, and top two deciles form three sub-groups in terms of their wealth allocation across the main wealth-holding products. The remaining deciles, six to eight, show dramatic differences in savings product selection, suggesting that this is where, in the population, financial education and the first major steps toward financial sophistication take place. Wealth and income The wealth and income distributions do not coincide entirely. It is quite possible for many of the occupants of the top two wealth deciles that dominate overall financial wealth holdings to have very low incomes. The top wealth deciles are likely to include a number of retirees living from accumulated savings and individuals who have inherited wealth. Many more may be semi-retired, or might have re-entered the workforce in some capacity in recent years in response to labour shortages. The chart shows the financial wealth distribution across the ten income deciles from the NOP-FRS survey on the same vertical scale as the previous wealth distribution charts. While wealth levels do certainly vary with income, the distribution is flatter and more evenly spread than the financial wealth distribution by wealth holding. Chart 9: The distribution of wealth by income decile, 1997/98

Wealth life cycles are an important source of change in the distribution of wealth and indeed of wealth endowment. For while homes are excluded from our financial wealth


The distribution of wealth by incomedecile, 1997/98

£1,085£2,585 £2,129

£5,140 £6,217 £7,412

£11,333 £10,282

£16,547

£22,339

£0

£10,000

£20,000

£30,000

£40,000

£50,000

£60,000

£70,000

Lowestincome

2 3 4 5 6 7 8 9 Highestincome

Mean decile wealth level

Source:IFS


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analysis, they are an important source of tangible wealth and will influence the levels of financial wealth that individuals would be willing and able to hold. Chart 10 shows the level of home ownership (with or without mortgage debt) in the UK since 1966. There have been two sharp increases in homeownership over this period – in the five years preceding 1972 and the entire 1980s. The ownership rate has leapt again since 1997 but it is probably too early to know if this will be sustained. Home ownership in the UK has increased over this period in response to government encouragement, de-regulation in the mortgage lending industry and the council house selling of the mid-1980s. Government encouragement took the forms of rhetoric and tax incentives (notably the introduction, in 1982, of Mortgage Interest Relief at Source which at its peak in 1990 took £8 billion off mortgage interest payments). The abolition of the supplementary special deposits scheme (‘corset’) in 1980 allowed the banks to enter the mortgage market, increasing the level of competition in lending. And between 1986 and 1990 1.6 million council houses were sold to tenants as part of Conservative Government’s ‘right-to- buy’ programme. Chart 10: Home ownership in the UK since 1966

An important contributing factor in the inter-generational spread of financial wealth is the inheritance of houses, which will continue to grow in response to these historical surges in home ownership. House inheritance is providing a new source of financial wealth for the descendants of those involved in these waves of broadening home ownership and again allows for significant wealth accumulation for individuals spread across the income scale. It also brings about immediate financial wealth for these descendants as houses are frequently sold in order for inheritances to be shared. The average house price in the UK is currently £82,000 (December 2000) according to the Nationwide Building Society.


Home ownership in the UK since 1966

0

10

20

30

40

50

60

70

66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98

%

Source:DETR


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1.4 The sources of financial wealth – why the numbers of ‘mass affluent’ have grown The distribution of wealth (in its broadest form) in the UK is mostly the result of wealth accumulation of previous generations. Tax structures and changes in the nature of employment may have affected the distribution at the margin, but much of the store of personal wealth has been inherited by its current owners. In this section we present a description of the key factors we believe have been and will continue to be most influential on both the stores of wealth that individuals choose to keep in financial form (as we have described) and on the distribution of that wealth. The level of world trade The growth of the world economy is a vital engine of economic growth for the UK. The problems caused by the appreciation of sterling’s value against the eurozone currencies since 1996 have emphasised the UK’s dependence on the world economy for trade and job creation. The last decade had seen continual openings of foreign markets, from eastern Europe to China, as more of the world has adopted capitalist new consumers and lower cost production facilities, have encouraged capital mobility on an unprecedented scale. British households have benefited directly mobility on an unprecedented scale. British households have benefited directly: the UK’s export industries have been supported by these new markets; consumers have enjoyed falling real prices for a range of imported goods; and earnings from foreign investments have increased substantially in recent years. World trade has qualitative effects on the distribution of wealth, too, for the increasing prominence of global firms in the UK has encouraged the use of more staff-focused operational structures to retain key employees. Moreover global firms have shown more willingness to remunerate skilled workers at their international rates, as noted below. Chart 11: World economic growth, 1970-1999


World economic growth, 1970-1999

0

1

2

3

4

5

6

7

8

1970-79 1980-89 1990-95 1996-99

UKUSJapanEUOECD total

Average annual %change in GDP

Source:OECD, The Future Foundation


16

Chart 11 gives an indication of world economic growth by showing the long term growth rates for the UK and its main trading partners. The Organisation for Co-operation and Development (OECD) members collectively account for 98% of the UK’s international trade. Economic growth in the OECD area generally exceeded that of the UK for each of the time periods shown. It was during the early 1990s that the UK’s economic growth was closest to the OECD average. The more rapid rates of growth achieved by the UK’s trading partners have ensured continuing the strength of its export markets. While the strength of export markets have been vital to wealth accumulation in the UK, so have been the business practices of foreign companies that have located businesses in the UK. The spread of executive stocks and options, described in some detail below, has accelerated in recent years and is something that has followed the practice of north American companies in retaining and remunerating highly valued staff. Labour market de-regulation Another source that has acted to heighten the skew in the distribution of wealth is the gradual de-regulation of employment in the UK during the 1980s. While employment law has certainly become more complicated over the last decade, especially for small companies, there has been increased freedom for companies to adjust their workforce size and location and to retain and reward highly skilled workers. This trend has mirrored the decline in influence and membership of trade unions and other occupational associations. This development has manifested itself in the rise of personalised contracts, where employment terms have increasingly been adapted to meet the needs of the individual. This is mostly in the form of flexible remuneration packages balancing basic salaries with bonuses etc, although flexible hours and periods of extended leave are also being used to incentivise employees. The overall impact of personalised contracts has been to tie the net worth of the individual’s contribution to the organisation to that person more closely, with the employee benefiting financially regardless of team or company performance. Since 1996 the proportion of GDP given to wages and salaries has increased from 66% to 69% according to National Statistics data. Firms have prioritised recruitment and remuneration of staff ahead of maintaining profits growth, which has stalled over this period. Employees are earning a greater proportion of the national income. Moreover, labour market deregulation has enabled companies to increases the wages and salaries of key individuals disproportionately in order to reward them. Chart 12 provides an illustration of how the higher income groups have gained disproportionately in recent years. The chart shows the increases in pre-tax income for illustrative percentiles of the population across the income scale. The chart shows that while the percentiles have all gained in income levels, the gains rise exponentially across the scale.


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Chart 12: The gains for percentiles in pre-tax income between 1994/5 and 1997/8

Self-employment Self-employment has been important to financial wealth creation because it not only brings about greater financial control for individuals who have to provide accounts of their business but also encourages more detailed financial planning because of the inherent risks involved in self-employment. And the self-employed are over-represented in the highest income groups: 6.8% of the self-employed earned more than £50,000 before tax in the 1997/98 year while just 2.8% of employees passed this amount, according to Inland Revenue statistics. Chart 13: Self-employment in the UK, 1970-1999


The gains for percentiles in pre-taxincome between 1994/5 and 1997/8

£570 £760 £750£1,300

£3,300

£5,300

£15,300

£0

£5,000

£10,000

£15,000

£20,000

1 5th 10th 50th 90th 95th 99th

Mean percentile income gain



Self-employment in the UK, 1970-1999

0

1

2

3

4

5

1970 1972 1974 1976 1978 1980 1982 1984 1 9 8 6 1 9 8 8 1 9 9 0 1 9 9 2 1994 1996 1998


Millions


18

The trend in self-employment over the last decade has surprised most analysts. The level of self-employment climbed steadily throughout the 1980s, doubling from two million to almost four million in response to the strong domestic demand and the optimism and entrepreneurial spirit of the time. The numbers of self-employed then fell sharply during and after the recession of 1991, by half a million in little more than two years, and has remained at around the 3.6 million level since. The statistics mask a number of definitional changes over this period. Alterations in employment law, particularly the reduction in the number of directors required for a limited company to one, saw a great number of the self-employed register themselves as employees of their own companies instead. National Insurance requirements have seen a number of employees effectively become self-employed while still working for their former employers. Directive IR35 has recently targeted these individuals for further NI contributions. It seems highly likely that true self-employment has been significantly under-recorded in recent years because of these regulatory changes. The spread of executive stocks and options The use of stocks and options to remunerate and retain staff has increased rapidly during the last five years. The aim is obviously to tie key staff members into the medium term business plan, to motivate them and perhaps to defer their full remuneration until profitability of the business venture has been confirmed. Government organised share-save schemes, giving tax allowances for employee share-buying over time, has undoubtedly encouraged this form of remuneration. This movement is closely associated with the raised profile of global corporations mentioned above, and these types of financial rewards for employees have been commonplace in large American corporations for some time. They have a duel effect on our distribution of wealth. First, they tend to be conferred on a relatively small group, widening the distribution of wealth. Secondly, they tend to be paid as financial assets in lump sums rather than as an income stream that might be spent over time. This manner of remuneration could take its recipients into our top two financial wealth deciles quite quickly. The most recent data available shows that participation rates of employees in profit sharing schemes have returned to the levels seen in the early 1990s of just over the 950,000 mark, although participation rates have been distorted by the changing tax treatment of profit share schemes. The average value of appropriation for participants is just £680 (again partly down to the tax treatment). The more dramatic stories are in employee savings-related share schemes and discretionary share option schemes.


19

Chart 14 Savings-related share option schemes, 1985/86-1997/98

Between the 1994/5 and 1997/8 financial years the number of participants in savings-related employee share schemes more than doubled to 1.17 million although the average value of participation per employee has fallen from the 1992/3 peak of £3,200 to the 1997/8 level of £2,500. While this value seems low, there is obviously some distribution of appropriation values around these averages. The participation in discretionary share option schemes has increased by even more dramatic proportions. The numbers gaining access to this form of remuneration increased by a factor of 3.7 between the 1994/5 financial year and the 1997/8 year to around a third of a million. There has also been a sharp reduction in the average value of this form of remuneration, from £24,000 to £3,300 per employee per year’s participation. Chart 15 Discretionary share option schemes, 1985/86-1997/98


Savings-related share option schemes,1985/6-1997/8

0

2 0 0

4 0 0

6 0 0

8 0 0

1 ,000

1 ,200

1 ,400

85/6 86/7 87/8 88/9 89/90 90/1 91/2 92/3 93/4 94/5 95/6 96/7 97/8£ 0

£500

£1,000

£1,500

£2,000

£2,500

£3,000

£3,500

Employees granted optionsAverage value per employee

Source: Inland Revenue Service/The Future Foundation

000s of employees Average value peremployee


Discretionary share option schemes,1985/6-1997/8

0

1 0 0

2 0 0

3 0 0

4 0 0

85/6 86/7 87/8 88/9 89/90 90/1 91/2 92/3 93/4 94/5 95/6 96/7 97/8£ 0

£5,000

£10,000

£15,000

£20,000

£25,000

£30,000

Employees granted optionsAverage value per employee

Source: Inland Revenue Service/The Future Foundation

000s of employees Average value peremployee


20

While some dilution in average value per employee has inevitably occurred as more people have been included in these schemes, they nonetheless provide substantial remuneration, often in lump sum forms, for many tens of thousands of employees at the top end of these share option scales. Given that until very recently participants in discretionary share option schemes were each paid an average of £24,000 annually, it would not take many years’ participation to accumulate shareholdings to qualify as a member of the ‘mass affluent’. 5 Taxation In spring 2000 Lord Levy famously remarked to the media that there was no taxation on absolute wealth levels. His point was widely taken. For while the taxation environment has been changed at the margin over the past decade, key rates of tax affecting financial wealth – income tax, capital gains tax and corporation tax – have been remarkably consistent. It has been the allowances, particularly at the lower end of the income scale, that have been altered. The taxation environment has nonetheless on balance treated the high wealth groups. The table below summarises the key changes in the taxation rates that are likely to have affected financial wealth levels. The higher income tax rate has not changed at all over this period. The greatest change has been in corporation tax rate that has fallen by three percentage points since 1996. Capital gains tax on amounts over the annual exemption has been levied on individuals at income tax rates since 1988. The annual exemption for individuals has increased from £5,000 in 1990 to £7,100 this year. The changes in taxation rates since 1990 Income tax

basic rate Income tax higher rate

Corporation tax full rate

percentages 1990/91 25 40 34 1991/92 25 40 33 1996/97 24 40 33 1997/98 23 40 31 1999/00 23 40 30 2000/01 23 40 30

Source Inland Revenue Technology entrepreneurs We include this category as a group of beneficiaries of the dot.com/technology wave of companies that have attracted so much media attention since 1998. While their fortunes may recently have ebbed, they nonetheless conveniently personify the latest methods of wealth accumulation. The technology boom of the last few years has created a vital new business model. Technology-based company start-ups, created by entrepreneurial individuals, accelerated quickly as the venture capital industry recognised their potential. Many have failed, and more are still emerging. But the rapid sales growth and instant media celebrity of companies such as Yahoo! And lastmunite.com have certainly persuaded


21

most business analysts that old markets can be threatened and new markets created by opportunistic ideas implemented by well managed new companies. This group also captures the high rewards to those individuals involved in the new economy who may not necessarily be company founders but will benefit financially from the resources that this industry is attracting. Perhaps more than ever before, sectors across the economy are allocating funds to new ventures in the communications and on-line industries. The wealth effect for those individuals with the appropriate skills will be significant. Unfortunately there are as yet no reliable estimates of the numbers of individuals involved. We would note, however, that the young age profile in these industries suggest that they might come from anywhere across the income spectrum.


22

As we note above, the entrepreneurial spirit of this group means that there have been and will continue to be casualties. The model of intellectual ownership of the central business idea by private individuals had been established, though and the e-commerce medium is still as open to small and start-up companies as it has been over the last five years. Attitudes towards savings There has been something of a sea change in the pattern of savings among UK households over the last decade. Until the early 1990s UK households saved proportionately little of their disposable incomes compared to their European and North American counterparts. This has been why the UK economy has been so much more dependent on consumer spending than most other industrialised economies for growth. Chart 16: Savings rates across Europe, 1983-99

There are a number of explanations for this shift in savings habits between 1989 and 1992. Most focus on the traditional precautionary motive for saving; the 1991 recession was so severe, and was the first to seriously affect the service sector and managerial employment, that savings habits responded to economic insecurity. This motive would also help to explain why savings rates have fallen so sharply since the start of 1998. For the economy is in its tenth consecutive year of positive growth and employment levels are at record highs so the precautionary motive to save could be expected to recede. The change inflation expectations in the early 1990s, when higher interest rates and falling world inflation reduced bond prices and made shares more attractive to hold, might also have stimulated savings behaviour. The strong stock market gains (despite weak economic growth) in the early 1990s provided a clear incentive for households to postpone consumption.


Savings rates across Europe, 1982-98

0

5

10

15

20

25

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

UK

Germany

France

Italy

Source: OECD/The Future Foundation

Percentage ofdisposable income


23

Chart 16 shows the savings of disposable incomes not spent on goods and services, of the UK compared with those of Germany, France and Italy. The chart shows that the proportion of disposable incomes saved by UK households in the early 1980s was comparable to that of German households, but significantly below those of France and Italy. The increases in borrowing that followed the deregulation of the Financial Services Act (1986) reduced the domestic savings ratio in the years that followed. The savings rate rose between 1989 and 1992 as interest rates increased sharply and households reduced debt levels, particularly on credit cards, as the threat of recession gathered and materialised. UK savings rates then approached European rates during the mid-1990s without ever quite matching them. Chart 17: Savings levels of UK households, 1970-1999

The level of saving increased dramatically in the early 1990s as Chart 17 shows. In nominal terms the level of saving, net of debt, increased from the low point of £11.2 billion in 1988 to £52.5 billion just three years later. This period also saw the development of the market for tax efficient savings products aimed at households – TESSAs and PEPs. The 1991 recession affected the managers and professionals much more profoundly than any previous recession. The risk associated with holding debt, which had been widely overlooked in the 1980s, became much more of a priority in the 1990s for those exposed. The reduction in the annual level of saving in 1998 can be attributed to the sharp fall in the growth in disposable income. Real household disposable income growth fell from 3.8% in 1997 to 0.2% in 1998 as personal taxation increased. Households maintained spending patterns in 1998 by reducing their level of saving. The savings ratio has remained at the 5% until falling to 3% in mid-2000. This has been mostly because of the levels of credit households have taken on. Consumer credit started to


Savings levels of UK households, 1970-99

0

10

20

30

40

50

60

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998

Current prices

1995 prices


£ billion


24

accelerate in mid-1999 in response to sustained income growth and intensifying competition in the lending industry. Nominal credit growth has increased from the 10% mark in autumn 1999 to over 16% by summer 2000 before easing to the 6% mark by December 2000. Successive governments have signalled the need for increasing private provision of welfare. The demographic change that the UK (and other western industrialised economies) is undergoing unambiguously means that without substantial increases in direct taxation individuals will have make greater private provision of pensions, unemployment insurance etc as the state reduces its role as provider. To date, the arguments may be clear but the available data shows that households have yet to act. Private pension ownership levels, of both occupational and personal, have hardly changed from their 1990 levels. The savings levels represented here are net of household debt and form the net additions to the stock of wealth. Indeed the entire stock of wealth is the result of past savings. We know from our analysis of the distribution of wealth from the BHPS that the median level of wealth is £600 and that most of the wealth stock belongs to the wealthiest 20% of individuals. The rise in savings levels over the last decade must therefore be largely attributable to this 20%. Accumulated savings over time must also be the most straightforward way for individuals to ascend the wealth distribution and join the ‘mass affluent’. Summary • Financial wealth held by UK households has increased by dramatic proportions in

the last two decades: in nominal terms from £213 billion in 1980 to £2,072 billion in 1998, a nine-fold increase equivalent to an average annual change of 13.4%. In constant (1995) prices there was a fourfold increase in financial wealth equivalent to an average annual increase of 7.9%;

• The distribution of financial wealth is heavily skewed in favour of the top 20% of

individuals. The surveys examined in this study confirm that the median wealth holding is £600; that 30% of the population have virtually no financial wealth; only 30% have more than £2,500; and that the top decile has an average £63,000, five times that of the second highest decile;

• Inland Revenue sources suggest that the distribution of wealth has slowly become

less skewed over the last thirty years and that wealth distribution has become slightly more unequal during the last few years

• It seems highly likely therefore that, with the increases in overall wealth levels

and the dominance of this wealth of the top 20% of individuals, the number of people with £50,000 in financial wealth is at its highest ever level;

• An examination of financial product holdings across the wealth spectrum reveals a

progression toward higher yield and more tax efficient holdings as wealth levels increase;


25

• The key factors recently determining the level and distribution of financial wealth held by individuals are world trade, labour market deregulation, self-employment, the spread of executive stocks and options, the taxation environment, the changing nature of entrepreneurship and attitudes toward savings.


26

Part 2: Who Are The ‘mass affluent’?


27

2.1: Basic Characteristics of the ‘mass affluent’ We have discussed the emergence of a new group of wealthy people (in the sense that they have relatively high levels of liquid assets) and the factors driving this change, but who exactly are these people? In this section we look at the characteristics of the ‘mass affluent’; in terms of their age, social grade, gender, activity status, civil status and household type. In the next section we examine their attitudes and lifestyles, combining analysis based upon the BHPS with analysis of attitude trends from the Future Foundation’s ‘Changing Lives’ survey. We have defined the ‘mass affluent’ as holding at least £50,000 in liquid assets. We have also, however, examined the characteristics of those with lower, but still substantial, levels of disposable wealth - between £25,000 and £50,000. Our rationale for this is that younger members of this wealth category are likely to experience rapid wealth growth in coming years and are therefore likely to be the ‘mass affluent’ of the future. Overview: Almost two thirds of those with more than £50,000 in liquid assets are men. Within the £25-50,000 wealth group, however, the distribution by gender is more balanced with a 55% - 45% split between men and women respectively. Chart 18: Gender and Liquid assets

The chart below shows that the ‘mass affluent’ are concentrated within the middle and older age groups. Only 14% of the ‘mass affluent’ are aged below 45. Almost half of those with more than £50,000 in liquid assets are located in the 45-64 age group. The other 38% are aged 65 or over. Again, the lower wealth group shows a more even distribution. About 28% of those with more than £25,000 but less then £50,000 are in the 25-44 age group, 40% in the 45-64 age group and 32% in the over 65 age group.

Gender breakdown, by quantity ofliquid assets

0 10 20 30 40 50 60 70 80 90 100

£ 50k+

£ 25K-50K

Male Female

%

Source: BHPS / The Future Foundation1995


28

Chart 19: Age and liquid assets

Chart 20 shows that about 3% of men and 2% of women in the under 45 age group have £25-50,000. This rises fairly evenly to 5-6% of both sexes as they move into their fifties, while around 8% of men and 6% of women in aged over 65 have liquid assets of £25-50,000. Chart 20: Age, gender, and liquid assets - 25-50k

As the chart beneath illustrates, the distribution of assets of more than £50,000 is more varied. Again, relatively few (2%) of the youngest age group of either sex have disposable wealth of more than £50,000. Amongst 45-64 year olds the ratio of middle

Age breakdown, by quantity of liquidassets

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

25-50k over 50k

65+

45-64

25-44

%


Percentage of men and women with £25,000to £50,000 disposable wealth by age group

0

1

2

3

4

5

6

7

8

9

25-44 45-64 65+

Men

Women

%



29

wealth holdings between men and women starts to widen with some 9% of men and 5% of women in this age group having £50,000 plus. The proportion of women aged 65+ holding more than £50,000 remains around 5% but for men the proportion rises sharply to 14%. These increasingly sharp differences in the likelihood of being middle wealthy between men and women as they reach their mid sixties are probably due to differential rates of mortality between men and women in different socio-economic groups. Men from lower social grades suffer higher mortality rates in later life than women of similar social grade. Chart 21: Age, gender, and liquid assets - 50k plus

The age distribution of the ‘mass affluent’ is reflected by their activity status, with almost half defining themselves as retired. About 32% of the £50,000 plus category are in full-time work, 12% in part-time work and the remaining 11% are either unemployed or not in the labour market for other reasons. Of those with wealth holdings of £25-£50,000 43% are in full time employment and 34% are retired.

Percentage of men and women with over£50,000 disposable wealth by age group

0

2

4

6

8

10

12

14

16

25-44 45-64 65+

Men

Women

%



30

Chart 22: Working status and liquid assets

Over half of those with £50,000+ wealth holdings are, or were, in professional or managerial occupations (AB). A further 30% are located in clerical and skilled manual intermediate occupational groups (C1,C2). Only around 10% and 7% are from semi-skilled manual or unskilled manual occupational groups respectively (DE). Amongst the £25-50,000 group the predominant socio-economic categories are C1C2’s who account for nearly 50% of all people in this wealth group. They are closely followed by professionals and managers who account for around 38%. Again, unskilled manual workers account for very few of the £25,000 to £50,000 wealth group. Chart 23: Social grade and disposable assets

Social grade (MRS) distribution, byquantity of liquid assets

0

10

20

30

40

50

60

Profesional / managerial Clerical /skilled manual Unskilled manual

£25-50K £50K+%


Working status, by quantity of liquidassets

0 %

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

£25-50k over 50k

Other

Retired

Part-time

Full-time

%



31

About 70% of the both wealth groups are married. Some 12% are widowed and 12% single (never married). Chart 24: Civil status and liquid assets

Whilst most of the “‘mass affluent’” with more than £50,000 live as part of a couple, more than 50% live with their partner in a household without children. A further 18% live with their partner in a household with one or more non-dependent children (defined as 18 years or older). Less than 20% of the ‘mass affluent’ (including single parents) live in households with dependent children). Single person households account for about 20% of the ‘mass affluent’, with the majority of these being elderly people. The household circumstances of the £25-50,000 wealth group are similar to the wealthier group. Chart 25: Household type and liquid assets

Civil status, by quantity of liquid assets

0

10

20

30

40

50

60

70

80

Married Divorced Widowed Never married

£25-50K £50K

%


Household types, by quantity of liquidassets

0

10

20

30

40

50

60

Single Couple nochildren

Coupledependentchildren

Couple nondependent

children

Single parent Other

£ 25-50k over 50k

%



32

Fine-tuning the profile of the ‘mass affluent’ Analyses of the ‘mass affluent’ through crosstabulation of variables such as gender or social grade against wealth provides some indication of the characteristics of the ‘mass affluent’. Such analyses are limited however because they only look at one or two variables at a time. For this reason logistic regression models were developed that estimated the relative likelihood (odds ratio) of an individual being ‘mass affluent’ dependent upon certain characteristics whilst holding the effects of other variables constant. The results of this showed that two characteristics above all others could be used to predict who were the middle wealthy. These were age (being 45-64) and social grade (past or present managerial or professional employment). Whilst age and social grade are key determinants of wealth holdings this does not mean that the ‘mass affluent’ are a single homogenous group. Two loosely identifiable categories of the ‘mass affluent’ appear to exist. The first, and currently most numerous, are the late middle aged group, typically male, and married but without dependent children living with them. This group will often have inherited property from their parents, and leveraged this further through financial windfalls in the shape of shares from privatised utilities or building society conversions. Although currently retired they are typically in receipt of occupational pensions and may also have received lump sums upon retirement. The second identifiable group are younger, typically in professional or managerial occupations, and may or may not be married or living with a partner. Within this group professional women are more evenly represented. The health of the ‘mass affluent’

Perhaps unsurprisingly, the ‘mass affluent’ report better health than less wealthy people. This holds true across all age groups but becomes increasingly marked in older age categories. Controlling for age, the ‘mass affluent’ are less likely to be anxious or depressed, suffer from physical problems with their limbs, have chest of breathing problems, suffer from migraine attacks, or have digestive disorders. Differences in all of these health outcomes between wealth groups increase with age.


33

Chart 26: Health and liquid assets

With the improved health status, and lower anxiety and depression of the ‘mass affluent’, it is not surprising that this group feels more energetic than less wealthy people. Overall, only 23% of those with less than £25,000 report feeling more energetic than people of similar age. This compares to more than 40% of those with more than £50,000. These differences remain in all age categories but are emphasised particularly strongly in the 45-64 age group. Active use of leisure time, which we will look at shortly, may also play a role here. Chart 27: Perception of energy and liquid assets

Percentage reporting good or excellenthealth during previous twelve months

0

10

20

30

40

50

60

70

80

90

All 25-44 45-64 65+

Under £25K £25-50K £50K+%


Percentage reporting they are moreenergetic than others of a similar age

0

5

10

15

20

25

30

35

40

45

50

All 25-44 45-64 65+

Under £25K £25-50K £50K+%



34

The working ‘mass affluent’ are typically more satisfied in their jobs than those with less money. They are more likely to be satisfied with their job security, pay, promotion prospects, use of initiative and their relationship with their boss than lower wealth groups. Chart 28: Job satisfaction and liquid assets

The ‘mass affluent’ also tend to work fewer hours than their less well off colleagues. In the following chart the median hours of all work, calculated by adding together paid work and housework, is shown by wealth and age group. Median hours vary most within the 45 to 64 age group with a fall from around 40 hours a week for the under £25,000 group to about 26 hours for the over £50,000 age group. This reflects the high proportion of people in the higher wealth group who take early retirement as they enter their fifties. Working hours for the over 65’s and the under 45’s stay relatively stable across wealth groups. Those working the longest hours are those in the mid wealth group (£25-50,000) aged below 45. This group is typically made up of young professionals, combining the double burden of career development with raising a family.

Percentage reporting satisfaction withvarious aspects of their job

(by disposable assets)

0

5

10

15

20

25

30

35

40

Overall Promotion Pay Relationswith boss

Security Initiative

Under £25K £25-50K £50K+%



35

Chart 29: Working hours and liquid assets

The chart below looks at gender and median hours worked in both paid and unpaid work, and by implication the time left for recreation or other activities. Here, the effect of high levels of wealth on the working hours of men and women in different age categories is highlighted. The largest effect is for women in the 45-64 age category where working hours vary between around 40 for those with under £25,000 to about 25 hours a week for those with £50,000 or more. Chart 30: Working hours: by age, gender and liquid assets

Median working hours (paid work andhousework) by age group and wealth group

10

15

20

25

30

35

40

45

50

under 25k 25-50K over 50k

25-44 45-64 65+Median hours per week


Median working hours (paid work andhousework) by age group , wealth group and

gender

0

5

10

15

20

25

30

35

40

45

50

Men 25-44 Women 25-44

Men 45-64 Women 45-64

Men 65+ Women 65+

Under £25K £25-£50K Over £50k%



36

Chart 31: Life satisfaction and liquid assets

Given their generally higher incomes and higher status at work, their extra free time, and their greater sense of energy and wellbeing, perhaps it is not surprising that the ‘mass affluent’ register higher levels of satisfaction with just about everything, from the household income to jobs, and even their spouse or partner.. Interestingly, the ‘mass affluent’ are also significantly more likely to be satisfied with social lives, despite (as we’ll see) seeing friends at home being a less common activity for this group. Somehow, though, greater satisfaction in each individual area does not seem to make for greater satisfaction with life overall. Whilst increasing levels of liquid assets are clearly related to satisfactory outcomes across the whole spectrum of life-experiences, the relation between asset-levels and satisfaction with life overall is not quite so clear cut, with the £25-50,000 group emerging the most satisfied. In summary, analysis of the BHPS data reveal that there are two main groups within the ‘mass affluent’. The first are most likely to be either male, late middle aged or retired. The second group are younger professionals. More women are found in this latter group. The data go on to show the ‘mass affluent’ as not only wealthier but healthier and happier (in terms of stress and energy levels) than their less well off peers. The profile of the ‘mass affluent’ of the future Although, currently approximately two thirds of the ‘mass affluent’ are over 45 we would predict that, within the context of changing employment patterns and demographic structures, the proportion of the ‘mass affluent’ in younger age groups will increase over coming years. The current cohort of 45-64 year olds have been fortunate in terms of their wealth accumulation over their life course.

Levels of life satisfaction Percentage reporting satisfaction with various aspects of

life, by volume of liquid assets

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Income ofhousehold

House / flat Spouse /partner

Job Social life Amount ofleisure time

Use o fleisure time

Life overall

<25k 25-50k Over 50k

Source: BHPS / The Future Foundation 1999


37

By contrast, future cohorts of people in their fifties and early sixties will well find themselves in a less favourable financial situation. Inheritance from parents is likely to be delayed due to increasing longevity of elderly parents. Moreover, the social care costs of elderly parents is likely to eat into any inheritance that they do finally receive. The high financial rewards of final salary pension schemes are also likely to be reduced as pension funds respond to the increasing financial pressures of pensioners living longer. By contrast the wealth holdings of certain younger groups is likely to increase. This is because of the ongoing increase in the numbers and incomes of single professionals, along with an increasing proportion of young professional couples who typically delay having children until career and economic stability is achieved. The proportion of younger women in the ‘mass affluent’ category may be expected to rise especially quickly as they increasingly attain senior professional and managerial positions. As we have found within our analysis, professional or high managerial status is a key predictor of liquid asset holdings of £50,000 or more, and changing gender roles mean that this is likely to become an even more important predictor in the future. In the next section, we look at the lifestyles and attitudes of the ‘mass affluent’.


38

2.2 The lifestyles of the ‘mass affluent’

In this section we will explore the attitudes and lifestyles of the ‘mass affluent’. In our analysis we highlight a number of complexities which we need to unravel. • First, whilst we have seen that the ‘mass affluent’ tend to be older, we find that the

opinions of individuals in this group are generally characteristic of people younger than themselves.

• Secondly, we have shown that the ‘mass affluent’ tend to have more leisure time,

with only a third in full-time jobs. However, we will see that they feel under more time pressure than their counterparts in the not-so-wealthy population.

• Thirdly, we find that the ‘mass affluent’ have generally pro-business attitudes. So

why then are they cynical and in some ways reluctant consumers? • Finally, the ‘mass affluent’ are a deeply conservative group in some respects,

although they also manage to be at the cutting edge of some emerging cultural trends.

Resolving these apparent contradictions will enable us to get a clearer understanding of the attitudes and aspirations of the ‘mass affluent’, and how they manifest themselves in lifestyles. The first point above, regarding age, explains why we believe it is crucial not to treat the ‘mass affluent’ as a homogenous group but to take account of age difference where possible. It is also crucial to compare the ‘mass affluent’ with their own peer group to fully show up the distinctive opinions and behaviour of this group.


39

Chart 32: Liquid assets and the perception of time pressure

Agreement with the statement “I am oftenunder time pressure in my everyday life”

By wealth level and working status

0%

10%

20%

30%

40%

50%

60%

70%

80%

Total population Not retired Retired

Total population 50k+ in liquid assets

Source: Changing Lives / The Future Foundation1999

A good example of this is the case of time-pressure. As the chart above demonstrates, overall, the ‘mass affluent’ are less time-pressured than the population as a whole. However, if we compare the non-retired ‘mass affluent’ with their non-retired counterparts, the ‘mass affluent’ emerge as more time-pressured. Additionally, the retired ‘mass affluent’ are no less time pressured than the retired in the total population. So, the generally older age of people in the ‘mass affluent’ group means that we can be mislead, unless we compare people of similar age in the different wealth bands. So why should the ‘mass affluent’ be under relatively more time pressure than their same-aged counterparts? We have already seen that on average they have more leisure time than others. The explanation undoubtedly lies in their greater expectations of leisure time. The ‘mass affluent’ are clearly a very active group, and significantly more active when we factor out the age effect. The way in which peoples’ expectations and aspirations change as they become wealthier is a theme which we will return to later on, as it is an important aspect of the emerging trends of our ever-wealthier society. For now, we will focus on the data on leisure activities and social involvement.


40

Leisure and social involvement Charts 33a and 33b: Liquid assets and leisure

Participation in various leisureactivities

by volume of liquid assets

0 %

1 0 %

2 0 %

3 0 %

4 0 %

5 0 %

6 0 %

Go toc i n e m a

month lyo r m o r e

Go toconcer t /theatre

month lyor more

Eat outw e e k l y o r

m o r e

Go for adrink

w e e k l y o rm o r e

Visit /visited by

friendsw e e k l y o r

more

Attendeven ingc l a s s e s

w e e k l y o rm o r e

Attendl o c a l

g r o u p sw e e k l y o r

more

D ovolutary

w o r kmonthlyor more

< 2 5 k 2 5 - 5 0 k O v e r 5 0 k


There are two dimensions here, leisure activities (including holidays) and participation in social / interest groups. The chart above compares the frequency of participation in various leisure activities within our three wealth bands. The ‘mass affluent’ have a greater frequency of concert and theatre-going, eating out, attending local groups and voluntary work, although cinema-going, drinking, and seeing friends are less frequent activities.

Leisure activities, adjusting for ageby volume of liquid assets, Base: All 35+

Indexed (<25k = 100)

0

50

100

150

200

Go to c inemamonthly or

more

Go toconcert/theatre

monthly ormore

Eat outweekly or

more

Go out for adrink weekly

or more

Vis i t /v is i tedby friendsweekly or

more

Attendeveningc lasses

weekly ormore

Attend localgroups

weekly ormore

Do volutarywork

monthly ormore

<25k 25-50k Over 50k


Now, when we factor out the effect of age, it becomes clear how different the ‘mass affluent’ are from their contemporaries. In six of these eight activities they are


41

significantly more likely to take part than their contemporaries. They actually go to the cinema about 50% more often than their contemporaries, and eat out more than twice as often. Interestingly though, the pattern that the overall breakdown suggested, that the ‘mass affluent’ tend to shift their social activities out of the home, is consistent across age groups. Whilst seeing friends at home remains lower than average, attendance of evening classes, local groups, voluntary work and other out-of-home activities are much more frequent. Chart 33c: Liquid assets and holidays

Furthermore, the greater leisure expectations of the middle wealthy make for very different patterns of holiday-making. Interestingly, this is one area where the retired ‘mass affluent’ buck their tendency to be more akin to the total population than the non-retired ‘mass affluent’, being more inclined to travel (especially abroad) than their non-retired counterparts. On the evidence of our Changing Lives survey from July 1999, the retired ‘mass affluent’ are 50% more likely to go on holiday in the UK than the average person, and almost twice as likely to go abroad.

Frequency of holidaysPercentage taking various types of holidays, by wealth and working

status

0%

10%

20%

30%

Had a holiday in UK 4+nights

Taken a short break holiday1-3 nights

Had a holiday abroad 4+nights

All 50k+ (non-retired) 50k+ (retired)

Source: ‘Changing Lives’ / The Future Foundation1999


42

The idea of the active middle wealthy is borne out strongly when we look at the average number of memberships of social and interest groups. The BHPS asks about 8 of these, namely religious groups, social groups, sports clubs, tenants groups, parents’ associations, political parties and professional organisations. As chart 34 shows, the ‘mass affluent’ are members of almost twice as many on average. The ‘mass affluent’ are significantly more likely to be members of religious groups, tenants/residents associations, political parties, and professional organisations, but less likely to be members of a social club or Trade Union. Chart 34: Liquid assets and social / interest group membership

Average number of memberships ofsocial and interest groups


0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

<25k 25-50k Over 50k



43

The ‘mass affluent’ as consumers One of the social trends discussed later is the increasing mistrust in companies we have seen over the last two decades. Here, as elsewhere, the ‘mass affluent’ are very much in tune with the times. As we will see in the section on falling trust in companies, they are a relatively cynical and demanding group of consumers. As consumers of durables, the ‘mass affluent’ do not match their performance as consumers of leisure. Chart 35 shows that the amount spent on consumer durables per year does not rise as steeply through the wealth groups as one might expect, and is actually highest in the 25-50,000 group, with a relatively small number of big spenders having a major impact. There is some evidence in this data to suggest that the spending of the ‘mass affluent’ may be relatively stealthier, with more emphasis on experiences than possessions, by comparison with the 25-50k group or the 0-25k group. However, this only seems to apply between the ages of 36-64. Chart 35: Liquid assets and consumer durables spending

Amount spent on consumer durables inpast year

by age and volume of liquid assets

0

200

400

600

800

1000

1200

1400

1600

Under35

36-50 51-64 65+ Under35

36-50 51-64 65+ Under35

36-50 51-64 65+

Mean Median

Under 25k 25-50k 50k+

£



44

The Internet Although they are not obviously big spenders on consumer durables, internet usage in the home is enthusiastically embraced by the middle wealthy, with a third of the overall group, and some 41% of the non-retired middle wealthy on-line at home in December 1999. We would project this to have risen to around 60% by the end of 2000. It is also noticeable that the retired ‘mass affluent’ have an exceptionally high level of access, around four times higher than the average retired person (chart 36). Chart 36: Internet usage, by working status and liquid assets

Internet UsageBy wealth level and working status

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Total population Not retired Retired

Total population 50k+ in liquid assets

Source: Changing Lives / The Future Foundation1999


45

2.3 Values and opinions We turn now to the political and social attitudes of the ‘mass affluent’. Looking at a broad spectrum of political opinions, the middle wealthy demonstrate a particularly strong faith in private enterprise, and a correspondingly low level of agreement with the idea that the government has an obligation to provide jobs Chart 37: Politics and liquid assets

Political opinions% agreeing with the idea that...


0 %1 0 %2 0 %3 0 %4 0 %5 0 %6 0 %7 0 %8 0 %9 0 %

1 0 0 %

C o m p u s o r ypr iva te

insurance i fcan pay

G o v e r n m e n thas ob l i ga t ion

t o p r o v i d e j o b s

O n e l a w f o rr i c h a n d o n e

f o r p o o r

Ordinaryp e o p l e s h a r e

n a t i o n s w e a l t h

P r i v a t ee n t e r p r i s e

s o l v e se c o n o m i cp r o b l e m s

P u b l i c s e r v i c e ss h o u l d b e s t a t e

o w n e d

S t r o n g t r a d e su n i o n s p r o t e c t

e m p l o y e e s

< 2 5 k 2 5 - 5 0 k O v e r 5 0 k


Interestingly, when we factor out age, nothing happens to political opinions. Although we might expect political attitudes to become relatively less conservative when the age factor is removed, the results reveal that the younger ‘mass affluent’ are just as likely to have relatively more enthusiasm for ‘free-market’ as their older peers. Gender roles and the family To some extent, the political conservatism of the ‘mass affluent’ is echoed in their attitudes surrounding family and gender roles. (chart 38a)


46

Chart 38a: Liquid assets and attitudes to family and gender

Family / gender role attitudesby volume of liquid assets

0 %

1 0 %2 0 %3 0 %

4 0 %

5 0 %6 0 %

7 0 %8 0 %9 0 %

C h i l d r e n n e e df a t h e r a s m u c h

a s m o t h e r

Family suffersi f m o t h e r

works full t ime

Full t ime jobm a k e s w o m a ni n d e p e n d e n t

H u s b a n d a n dwife should

both contribute

Husbandshou ld earn ,wi fe s tay a t

h o m e

P r e - s c h o o lchild suffers ifm o t h e r w o r k s

W o m a n a n dfami ly happier

i f s h e w o r k s

< 2 5 k 2 5 - 5 0 k O v e r 5 0 k


Factoring out age, we find that attitudes to women working remain generally more negative across all age groups. (chart 38b) Chart 38b:

Family/gender role attitudes, with agefactored out

by volume of liquid assets, Base: All 25+Indexed (<25k = 100)

020406080

100120140160180200

Children need

father as muchas mother

Family suffers

if motherworks full time

Full time job

makes womanindependent

Husband and

wife shouldboth contribute

Husband

should earn,wife stay at

home

Pre-school

child suffers ifmother works

Woman and

family happierif she works

<25k 25-50k Over 50k


However, the strongest statement of fixed gender roles, that “the husband should work while the wife stays at home”, is actually finding less agreement among the wealthy in younger age groups than among their less wealthy counterparts. This suggests that healthy finances are related to the demand for the freedom of women to work, but an ambivalence about its effect on the family and a rejection of any fixed prescriptions in the matter. The freedom for women to remain at home with the family may be an important issue for the relatively small proportion of ‘mass affluent’ who are starting families.


47

The ‘mass affluent’ and emerging attitude trends The political and social conservatism of the ‘mass affluent’ needs qualifying. We used data from the Future Foundation’s Changing Lives survey to place the ‘mass affluent’ in a dynamic context, locating them in relation to emerging cultural trends since 1980. What we found was surprising. Having factored out the age effect, we discovered that the ‘mass affluent’ were significantly ahead of trend in the majority of the major emerging trends identified by Changing Lives. Arguably, the cultural shifts we will examine here are pushed along by deep ideological undercurrents and are properly placed in a historical context. Coming from this angle, Charles Taylor, a leading authority on the historical roots of Western identity, sees the emerging desire for ‘authenticity’, (the free development of one’s ‘true self’) as a key aspect of modern western thinking. On a more quantitative level, the move towards more ‘inner-directed’ values has also been suggested by research by Synergy Brand Values in conjunction with Demos, among others. Although this shift in the emphasis of values has been well-documented in research during the last two decades, we should be cautious about exactly how we understand the idea of ‘inner-directed’ – this does not necessarily mean selfish or narrow minded. Despite the historical breadth and depth of this shift, it is by no means an inevitable and universal process. There is evidence that economic circumstance plays a crucial role in enabling the development of such values. Some readers will be familiar with Abraham Maslow’s ‘hierarchy of needs’ theory. This is based on the idea that as a society enables people to satisfy basic needs such as sustenance and security, people respond by focusing on ‘higher’ aspirations, for socialisation, and eventually ‘self-actualisation’. If this is the case, the effect of increasing prosperity over the last half century provides us with good reason to expect a more general shift in attitudes and aspirations, as well as explaining the dramatic differences in the aspirations of the ‘mass affluent’. Recent years have undoubtedly seen the ongoing satisfaction of more ‘basic’ needs for many – child mortality rates halved between 1961 and 1981, and have halved again since then. Central heating, which is now enjoyed by nine out of ten households, was installed in only 37% of households in 1972. And, as we shall see, economic development has indeed been accompanied by a major shift towards more ‘inner-directed’, or ‘self-actualising’ aspirations over the last two decades. First then, we can take the direct approach: presented with a list of wishes, the proportion choosing more fulfilment as their main wish has risen from less than one in five in 1986 to more than a third of respondents today (chart 39). The ‘mass affluent’ emerge ahead of this trend as an overall group, and among the non-retired ‘mass affluent’, fully half of respondents chose ‘more fulfilment’ as their main wish.


48

Chart 39: Liquid assets and the wish for fulfilment

Wish for fulfilment% choosing more fulfillment as main wish

0%

10%

20%

30%

40%

50%

60%

1983 1986 1996 1999

All All with 50k+ 50k+, not retired

Base: 1000-2000 adults aged 16+Source: 'Changing lives', The Future Foundation/AGB/Taylor Nelson

It seems that the demand for fulfillment goes hand in hand with a more individualistic attitude. Cohort analysis has shown that greater individualism is both a generational phenomenon and an ongoing cultural drive. Not only is each successive generation is more individualistic than the last, but, with the exception of the oldest generation, people have been becoming more individualistic as they go through life. Chart 40: Liquid assets and individualism

Attitudes to individualism in the UK% who agree that it is important to fit in rather than be different from

other people.

0 %

10%

20%

30%

40%

50%

60%

1980 1983 1986 1999 50k+ in liquidasssets

1980 1983 1986 1999 50k+ in liquid asssets

Source: 'Changing Lives', The Future Foundation/Taylor Nelson/AGB Base: 1000-2000 adults 16+



49

As chart 40 illustrates, the ‘mass affluent’ are significantly more individualistic than others. Those, on the other hand, who feel it is more important to fit in, may be making some equation between individualism and selfishness. This is certainly a much discussed issue, but the overall picture of emerging attitude trends suggests a different story. Self-actualisation, of which individualism is one expression, seems to be just as much about operating with a wider sphere of consciousness and concerns, as we shall see. Chart 41: Liquid assets and self-improvement

Self-improvement high on the agendaFeelings about self improvement

“Which one of these statements comes closest to describing your own feelings?”

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1980 1983 1986 1999 50k+ notretired

50k+, retired

I work hard at it Sometimes I do it

Base: 1000-2000 adults 16+Source: 'Changing lives', The Future Foundation/AGB/Taylor Nelson

All

Asking about feelings about self-improvement is another way of approaching the question. We have seen a significant increase in the number of people saying ‘I work hard at it’ or ‘sometimes I do it’ since 1983. (chart 41). Again, the non-retired ‘mass affluent’ are ahead of this trend, and perhaps more surprisingly, the retired ‘mass affluent’ are very close behind it. On the one hand, this is reflected in the idea that education is important for its own sake.


50

Chart 42: Liquid assets and attitude to education

Education is important for its own sake

0 %

1 0 %

2 0 %

3 0 %

4 0 %

5 0 %

6 0 %

1983 1986 1999

All Al l with 50k+

Base: 1000-2000 adults 16+

“Which one of these statements comes closest to describing your own feelings?”

Feelings about education

Source: 'Changing lives', The Future Foundation/AGB/Taylor Nelson

The proportion agreeing with this has risen from around one in four respondents in 1986 to around half of all respondents today (chart 42). Yet again the ‘mass affluent’, in overall terms, are ahead on this count. On the other hand, the concern with staying fit and healthy is also on the rise. Here the rise has been less modest, to 72%, having been a concern for 66% already, in 1986. Chart 43: Liquid assets and concern with fitness

Concern about staying fit and healthyBy age and gender in the UK

Proportion of people who say they are concerned at all about trying to stay fit and healthy

50

55

60

65

70

75

80

85

1986 1996 1999

%

All 50k+, ret ired 50k+, not retired


Again, the middle wealthy who are not retired are way ahead of this trend, with over 4 out of five expressing concern about staying fit and healthy, and the retired ‘mass affluent’ do not lag far behind, with 68% concerned. However, whilst these trends make a convincing case for the increasing importance of self-actualisation, and the place of the middle wealthy at the cutting edge of this trend (despite their older make-up), there are some complications.


51

It seems that the development of needs is not as linear a process as Maslow’s hierarchy might suggest. Some new needs and concerns emerge unexpectedly, and some older needs and concerns do not disappear. Firstly, the plethora of opportunities and choices that affluence give us are not wholeheartedly welcomed. Furthermore, greater material security has not meant that we can leave fear behind us, but rather the creation of new fears. Our Complicated Lives research for Abbey National revealed that many people feel annoyed and confused by the proliferation of choice that our affluent society has created. Not only has the range of groceries on offer exploded, but entirely new fields of choice have emerged, between energy suppliers, communications suppliers and broadcasters. This trend, coupled with the pressure on time which our quest for fulfilment creates, causes people to want some choices taken out of their hands, particularly those choices which have no relation to their sense of identity. Therefore, the demand for choice-managers, be they trusted brands, advisors, or on-line databases, will vary from person to person and product to product. Another unexpected consequence of affluence and increased choices seems to be that we have more worries, about increasingly complex and minute issues. An entire industry of ‘experts’, from the media, interest groups and politics has developed to meet (and fuel) the desire for information about the risks we face as a society and as individual consumers. Not surprisingly then, another important emerging trend is falling trust in companies and increased demand for regulation.


52

Falling trust in companies – growing demand for regulation As mentioned earlier, the ‘mass affluent’ appear well ahead of this trend. (chart 44) Chart 44: Liquid assets and trust in companies

Decreasing trust in companies?Proportion agreeing:

“Do you agree that most companies are fair to consumers?”

0%

10%

20%

30%

40%

50%

60%

70%

1980 1983 1986 1996 1999 50k+ in liquid

assets

1980 1983 1986 1996 1999 50k+ in liquid assets

Base: 1000-2000 adults16 +Source: 'Changing lives', The Future Foundation/AGB/Taylor Nelson

Although political opinions would seem to indicate a pro-business stance, it is perhaps no real contradiction that the ‘mass affluent’ are such critical consumers – after all, they have the time, money and cultural/intellectual/informational resources to bring many considerations to bear on a range of choice which is relatively less constrained by price considerations. Chart 45: Liquid assets and attitudes to regulation

Attitudes to government regulation% who agree or strongly agree

“Even well known, long established companies cannot be trusted to make safe,durable products without the government setting industry standards”

0%

10%

20%

30%

40%

50%

60%

70%

1 9 8 0 1983 1986 1 9 9 9 50k+ in liquidassets

1 9 8 0 1983 1986 1999 50k+ in liquid assets



53

The support for regulation (chart 45) amongst the mass affluent looks more surprising, until we consider that the combination of a pro-business stance and backing for government regulation is currently in vogue around the world, not least under the current Labour government. Chart 46: Liquid assets and environmentalism

The popularity of regulation may also reflect increasing concerns about the environment. Here again, the ‘mass affluent’ are more concerned than average, especially the non-retired group, of whom six in ten say they are personally concerned. As well as helping to explain the mistrust of companies which is manifested by the ‘mass affluent’, their concern with the environment provides us with more evidence to suggest that the values of the mass affluent go beyond merely personal nurturing. Finally, it is clear that the increase in wealth and the increasing prevalence of ‘post-materialist’ values has not been paralleled by a general lessening of interest in money, despite the well-publicised suggestion of a trend towards ‘downscaling’. On the contrary, we find people increasingly keen on saving money, planning ahead, and bringing a wider range of concerns to bear on financial decisions. Perhaps this is not so surprising. It is probably incorrect to locate financial affairs at the bottom end of Maslow’s hierarchy, as merely an aspect, or extension of the necessary business of survival. Although it is often denied that wealth can lead to self-fulfillment, the evidence (and common sense) suggests that money is a facilitator of the satisfaction of needs at much ‘higher’ levels too. Firstly then, we can look at attitudes to saving. Here there has been a significant increase in the number of people subscribing to the rather austere statement that “Everyone should save some of their earnings, even if it means depriving themselves of something they think they need”. In the last two decades agreement has gone from exactly half, to some 60% of people (chart 47), and again, that ‘mass affluent’ are ahead of trend here.

Concern with the protection of environment andnatural resources in the UK

For each of the following, tell me whether you are concerned at all about it at all:“What I myself can do to protect our environment and natural resources”

0%

10%

20%

30%

40%

50%

60%

70%

1983 1986 1996 1999 50k+ (all) 50k+ (notretired)

Source: 'Changing Lives', The Future Foundation/Taylor Nelson/AGB Base: 1000-2000 adults 16+


54

Chart 47: Liquid assets and attitudes to saving

Attitudes to saving% who agree that it is important to save, even if it means depriving themselves of

something they think they need

Please say how much you agree or disagree with the following statement: “Everyone should save some oftheir earnings even if it means depriving themselves of something they think they need”

Base: 1000-2000 adults+

30%

35%

40%

45%

50%

55%

60%

65%

70%

1980 1983 1986 1999 50k+ in liquidassets

Source: 'Changing lives', The Future Foundation/AGB/Taylor Nelson

This apparent paradox, that we should be adopting more considered attitudes to finance in these affluent times, is deepened when we look at attitudes towards planning ahead. Here we have seen the number of people agreeing with the statement “I like to plan 5 to 10 years ahead” rise by some 60%, from 16% to 26%, over the last two decades (chart 48). Here the ‘mass affluent’ are dramatically different. Well over two-thirds of them say that they like to plan ahead. Chart 48: Liquid assets and forward planning

More people like to plan ahead% who agree that they like to plan 5 to 10 years ahead

Please say how much you agree or disagree with the following statements " I like to plan 5 to 10 yearsahead"

0%

5%

10%

15%

20%

25%

30%

35%

40%

1980 1983 1986 1999 50k+ in liquidassets

1 9 8 0

1 9 8 3

1 9 8 6

1 9 9 9

50k+ in liquid assets



55

In fact, there is no real paradox between affluence and growing concern with financial planning. Whilst a significant proportion of the population are still bound to the day-to-day concern with ‘making ends meet’, growing numbers of us have the disposable income to think about financial planning in the longer term. What do the ‘mass affluent’ want from financial services? As we have seen, the ‘mass affluent’ have some conflicting characteristics, and this makes them difficult to please. They tend to be older, but are very active in pursuing leisure and community involvement. We have also seen that they are keen savers and planners, despite being cautious consumers with complex agendas and the perception of a lack of time. The ‘mass affluent’ will expect multiple means of access to accounts, information and advice. As older consumers with considerable sums to manage, they will expect the reassurance of personal service if they feel it necessary. However, they will also expect to have telephone, internet, and eventually mobile internet access, reflecting their highly active lifestyles and high level of internet access. Another aspect of the ‘mass affluent’ that service-providers must focus on is the combination of financial involvement with their busy lifestyles. Most of the ‘mass affluent’ will want to retain some degree of control over their finances, without however being burdened by unwanted decisions or irrelevant information. Financial providers need to respond by offering a highly flexible service, in which individuals can define and redefine the areas they want to be responsible for. For many, the management of their own funds will be as much an issue of reflecting their own knowledge, personalities and values as a straightforward financial one. For this reason, the degree of control which the ‘mass affluent’ will want to exercise over their finances will vary widely from one individual to another. For these reasons, we see comprehensive but flexible access and elective account management as the cornerstones of an attractive financial services package for the ‘mass affluent’. Summary: In summary, while at first the data relating to the attitudes of the ‘mass affluent’ appear to raise contradictions, this analysis shows that each contradiction can be explained and a coherent image of the ‘mass affluent’ has developed. Their key characteristics can be summarised as follows: • They are time pressurised as a result of the additional claims on their leisure time • They tend to have conservative attitudes, about gender roles in particular, but in

practice they are pragmatic • They are careful, cynical consumers interested in saving and planning for the

future • Most importantly, they are significantly ahead of their peers in terms of their

demands for self actualisation – they are more individualistic, more interested in self fulfilment and keener on self improvement.


56

Part 3: The Future of Wealth in the UK

3.1 The future of wealth in the UK The store of financial wealth owned by individuals has increased dramatically over the last twenty years. As Section One reported, in current prices there has been a ninefold increase in financial wealth, from £213 billion in 1980 to £2,072 billion in 1998 equivalent to an average annual 13.4% increase. In constant prices, with the effect of inflation removed, there has been a fourfold rise or an average 7.9% increase per year. This gain in wealth has been mostly to the benefit of the wealthiest twenty percent of individuals. The median level of wealth was £600 in 1995 according to the BHPS, implying that half the population held £600 or less in financial wealth. In this section we establish the framework for our forecasts of future levels of financial wealth and how this wealth will be distributed. We consider the contributions that each of the determinants of wealth distribution described in Section One will have, focussing on the top two deciles. We forecast the overall value of financial wealth over the next five years and show how the distribution of financial wealth for the top twenty percent will be affected, in percentiles. We also draw some conclusions on how current investment services will have to adapt to meet the developing needs of the ‘mass affluent’. 3.2 The drivers of financial wealth generation and distribution over the next five years The level of world trade World economic growth is a vital source of dynamism for the UK economy. The combined value of exports and imports come to about two-thirds of gross domestic product, making the UK one of the most trade dependent nations in the European Union. World trade not only directly affects wealth creation but also influences the distribution of wealth. The prominence of global corporations in the UK has led to the introduction of more operational structures and remuneration strategies designed to retain key employees. The world economic outlook appears to be slightly more promising over the next five years than it has been over the last five:- • The North American economy appears to be negotiating a successful slowdown,

despite fears of a recession, after its longest period of economic expansion. The inflationary threats from the over-valued stock market and surging domestic demand had been met tactically with successive interest rate increases, and better than expected productivity gains in industry have enabled product and service supply conditions to keep close to final demand. The January 2001 interest rate cut marks a change in policy direction that is intended to shore up consumer and business confidence and avert to rapid an adjustment in stock prices. Economic growth should remain positive into the medium term but will fall from 1999’s unsustainable 4.2%;


57

• The European Union economy is accelerating as the German economy approaches the peak of its growth cycle while the French and Italian economies have reached theirs. The German expansion will naturally feed into the satellite economies of the Benelux. We are expecting some revival in confidence in the euro over the next six months, reflecting the strength of the eurozone economy and a slowing US economy. We are assuming that the euro should see something of a recovery against the dollar and sterling in the first half of 2001. The eurozone economic growth performance will be better into the medium term than it has been in recent years, peaking over the next six months but sustaining the positive growth cycle into the medium term;

• The UK’s Far East export markets have been recovering over the last eighteen

months after the financial crises in late 1998. The speed of the recovery in the Far East economies has exceeded virtually all expectations, with Malaysia, Singapore and Hong Kong all showing double-digit GDP growth rates. The Far East markets will become more important to exporters as the North American market stabilises over the next two years. Japan remains the problem child of the region with banking system weakness and depressed consumer confidence holding back sustained recovery.


58

Chart 49:World economic growth, 1970-2005

The chart shows the GDP forecasts for the UK’s major trading regions. Growth over the next five years should be much the same as it has been for the last five, with less emphasis on North America and more on Europe and the Far East. Capitalist trade philosophies will continue to dominate, and the world economy will be a positive but moderate source of wealth generation over the next five years. Its impact in wealth distribution, through income growth and employment practices, will be to strengthen the position of the top twenty percent of financial wealth holders. Labour market deregulation While labour market deregulation has been a keen source of wealth redistribution in favour of the top twenty percent over the last decade, its influence may be limited over the next five years. The idea of even more labour market regulation seems unlikely to revive in the UK. Indeed it has been widely acknowledged that Europe’s highly regulated labour markets must show more flexibility to complete in global markets and the UK, along with the US, is the most frequently quoted model for the EU to follow. The Labour Government has introduced two significant measures of regulation in recent years – the National Minimum Wage and the EU Directive on working hours. Their effects on employment levels so far appear to have been negligible, although it is still perhaps too early to tell. There is probably scope for further deregulation in the UK’s labour market but this scope is limited. Personalised contracts for highly skilled employees are commonplace in most industrial sectors, certainly in the private sector. There is potential for key staff to gain greater control of their employment contracts in the public and charities sectors, but this will require some cultural changes. We expect that this source of wealth inequality will continue to favour the top twenty percent of


World economic growth, 1970-2005

0

1

2

3

4

5

6

7

8

1970-79 1980-89 1990-95 1996-99 2000-05

US

JapanEU

OECD total

Average annual %change in GDP

Source: OECD/The Future Foundation


59

the wealth distribution over the next five years, but to a lesser extent than it has done in the recent past. Self-employment We expect there to be a revival in self-employment in the UK after the stasis of the last five years. The forces behind this revival will be:- • the reclassification of a number of (effectively freelance) knowledge workers into

the self-employed category; • the increasing flexibility that the labour market is requiring from its workers in the

service sector, particularly in the IT and communications industries; • there is also likely to be a resurgence in both confidence and entrepreneurial spirit

after years of consistent economic growth; • and the trend for smaller central office units with more outsourcing seems set to

continue to create more opportunities for the self-employed. Chart 50: Self-employment in the UK, 1970-2005

The chart shows that we expect that self-employment will continue with the increase of the last year and extend this over the forecast horizon. Most of this increase is expected to happen over the next two years as the current economic cycle works to its peak in 2002. The number of self-employed is forecast to rise from 1999’s total of 3.5 million to just over 3.6 million in 2002 and to reach 3.9 million by 2005. This will accentuate the wealth distribution in favour of the top twenty percent at the expense of lower deciles.


Self-employment in the UK, 1970-2005

0

1

2

3

4

5

1 9 7 0 1 9 7 2 1 9 7 4 1 9 7 6 1 9 7 8 1 9 8 0 1982 1984 1986 1988 1990 1992 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4


Millions


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Executive stocks and options Like that of labour market deregulation we believe that the effect of this change in employment practice has already had its major effect on the generation and distribution of wealth. The companies that have the cultures and values to engender this form of remuneration have probably already experimented with them. However, other companies will feel the need to compete for human resources and there will still be some further scope for extending stocks and options incentives to more staff or new staff members. The recent rapid increase in the numbers of employees receiving this form of remuneration (a 46% increase in the number getting savings-related share options and a staggering 136% rise in the number getting discretionary share options in the last year of available data, 1997/98) makes this factor particularly difficult to predict. We are therefore assuming that the numbers receiving this form of remuneration will increase by a further 50% over the five year forecast horizon. This is a conservative assumption in view of the recent scales of increase, reflecting our expectations of the degree of uncertainty about the future of this driver and would tend to understate the positive impact this factor would have on the size of the ‘mass affluent’ population. The effect of this assumption on the distribution of wealth is going to be one of increased inequality (favouring the top twenty percent) but is not going to be as acutely pronounced as it has been in the last few years. Taxation As noted in Section One above, the taxation environment has encouraged a slightly more acute distribution of wealth over the last decade. The expected enduring strength of the domestic economy over the forecast horizon should ensure some long term scope for taxation cuts. The recently announced increases in state spending reflect past state fund surpluses rather than any intended profligacy into the medium term. The higher rate of income tax is unlikely to be changed because of its symbolism with the electorate, at least by a future Labour government. We anticipate one more percentage cut in the basic rate of income tax over the next five years and another cut in corporation tax. The former will benefit the two-thirds of households who pay income tax while the latter will tend to benefit the higher wealth groups through their holdings of shares, ISAs/TESSAs and unit trusts. The ‘mass affluent’ will benefit from both changes since they are likely to be standard/higher income tax rate payers and will have substantial investment in company stocks. The technology entrepreneurs The success the new technology industries industry has had in attracting venture capital to start-up companies across a range of consumer and business serving sectors has itself been a source of wealth distribution. The beneficiaries of these ventures have so far been the direct stakeholders, the IT support industries and the advertising industries that have been asked to spend a high proportion of these funds. The stakeholders in these start-ups have by and large gained significantly in financial wealth; they should start to occupy the top two wealth deciles if they do not already. We believe that this source of wealth distribution should continue into the medium term as it has done in the past. There is little to suggest that the entrepreneurial spirit


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of these start-up companies has waned at all, despite some recent, widely published failures and there is continued faith in the new business models. The technology industries will still continue produce new wealth, but for a relatively small (and probably young) number of people. 7 Attitudes towards saving Personal savings mark perhaps the most significant step change in household economic behaviour of the last decade. The savings ratio, the proportion of disposable income not spent on goods and services, has moved counter-cyclically with the economy. As the economy slowed during the early 1980s and early 1990s, the savings ratio increased sharply. It fell steadily during the growth phases of the late 1970s and the mid-1980s, and has fallen again during the last three years. This, again, is widely attributed to rising levels of consumer confidence reflecting the uninterrupted years of economic growth and tightening job market. The acceleration in consumer credit level in the last three years would confirm this picture. Chart 51: The savings ratio 1970-2005

However, we expect the savings ratio to start to rise again over the next few years. This will partly be due to the shape of the current economic cycle that is assumed to peak in 2002. The subsequent slow down in growth should prompt some reduction in household spending and some credit repayment; the precautionary saving motive. We also expect that households will start to react more seriously to government guidance on private pension provision. The recent media coverage of the paucity of the state pension, and the difficulty of maintaining the standard of living of those dependent on the state pension, has succeeded in highlighting the need for greater personal responsibility in pension saving. The pensions issue will be with us for some time now, and the forecast accounts for this change in attitude. The savings ratio is expected to recover to the 10% level over the next three years, maintaining this level before tailing off again when economic growth accelerates again in 2004/5. It has


The savings ratio, 1970-2005

0 %

5 %

1 0 %

1 5 %

1 9 7 0 1972 1974 1 9 7 6 1 9 7 8 1980 1982 1984 1 9 8 6 1 9 8 8 1990 1992 1 9 9 4 1 9 9 6 1998 2000 2002 2 0 0 4


Proportion ofdisposable income


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been assumed that there will be no step change in inflation expectations over the forecast horizon and that the current legislation requiring the 2.5% underlying inflation target remains. 3.3 Forecasts of wealth levels and distribution The level of financial wealth in the UK held by individuals has increased at an astonishing rate over the past twenty years. Increases in household incomes have been a vital source of this growth. The chart shows the history of income and output (GDP) growth in real terms since 1980 with our forecast. The history of the economy is captured by the GDP series – the recession in the early 1980s, the sustained high levels of growth in the late 1980s, the 1991 recession and the consistent, positive economic growth since. The chart also shows how real disposable income growth was not as adversely affected by the 1991 recession as output levels suggest, but then fell behind output growth as the economy recovered. This was because the recovery was achieved with marginal increases to the workforce. It has only been since 1997, when the numbers in employment have increased so quickly, that RHDI growth has again exceeded GDP growth. Chart 52: Income growth forecast, 1980-2005

The forecast is for the current benign economic environment – low inflation and interest rates, strong business investment and export sales – to continue into the medium term. GDP growth is expected to be maintained at current levels, peaking in 2002. The labour market is assumed to remain tight and that the high levels of employment should be maintained, although wage growth should moderate from recent levels in the short term as the private sector works to improve profit margins. As a result, RHDI growth should fall behind GDP growth in the early years of the forecast, reviving from 2002.


Income growth forecast, 1980-2005

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

1 9 8 0 1982 1 9 8 4 1 9 8 6 1988 1 9 9 0 1992 1 9 9 4 1 9 9 6 1998 2000 2 0 0 2 2004

G D P

Real disposable income



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The other key influence on the levels of financial wealth held by individuals will be asset values. The primary source of financial asset appreciation will be share prices since shares form a significant proportion of financial wealth as chart 8 (above) shows. Moreover, the returns to other financial assets such unit trusts and the tax-exempt savings products (ISAs, TESSAs, PEPS) will be largely determined by stock exchange movements. The chart below shows the history of stock prices in nominal terms since 1980 with our forecast. Chart 53: London stock exchange share prices, 1980-2005

Share prices have slowed considerably since the spring of 2000 and showed an overall fall of just over 7% for the year. This was been partly in response to the higher interest rates in the United States. These have limited share price increases there, and many companies are quoted both in London and in New York, (although rates there are now falling) but this poor performance is mostly down to the recognition that shares have been overpriced in the London markets for some time. The catalyst for this realignment of expectations was the sharp fall in technology stock values both here and in the US. As the chart demonstrates, share prices are inherently volatile. Our forecasts does not attempt to identify the specific peaks and troughs of share prices over the next five years which will doubtless reflect the market’s ‘animal spirits’ as much as the collective corporate performance and other market conditions. We expect that nominal share price growth will recover at the start of 2001 and will continue the trend growth of the mid-1990s, averaging between five and six percent, about three percentage points above the inflation rate.


London share prices 1980-2005

-10

0

10

20

30

1980 1982 1984 1986 1 9 8 8 1 9 9 0 1 9 9 2 1 9 9 4 1996 1998 2000 2002 2 0 0 4

Source: Financial Times/The Future Foundation

FT Index of OrdinaryShares, % change


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Chart 54: Household financial wealth, 1980-2005

The value of financial wealth is forecast to increase by an average 4.0% in constant prices and by 6.7% in current prices over the five year forecast horizon, a slight reduction in the rate of growth compared to the last five years. This is because of the slightly lower expected savings propensity and the lower expected growth in stock prices. Disposable incomes are expected to increase at recent levels. Actual and forecast % growth in household financial wealth 1980-2005 Current prices Constant prices 1980-1985 15.4 7.7

1985-1990 13.1 6.8

1990-1995 8.4 4.8

1995-2000 9.8 6.9

2000-2005 6.7 4.0

Source National Statistics, Future Foundation While the rate of accumulation of financial wealth seems set to slow a little over the next five years, the 4.0% annual growth in real terms represents substantial cumulative gain, close to the experience of the first half of the 1990s.


Households’ financial wealth, 1980-2005

0

200

400

600

800

1 ,000

1 ,200

1 ,400

1 ,600

1 ,800

2 ,000

1 9 8 0 1 9 8 2 1 9 8 4 1 9 8 6 1 9 8 8 1 9 9 0 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4


£ billion

Currentprices

1995 prices


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Chart 55: The distribution of wealth 1995 and 2005

Naturally, the rate of increase in financial wealth will not be uniform across the deciles or within deciles, and key to the positioning of products and services aimed at the ‘mass affluent’ will be the distribution of wealth across the top two deciles. Chart 55 shows the forecast for the distribution of financial wealth across the deciles in constant (1995) prices. The schema below summarises the impact on the distribution of wealth of the factors listed and explained above. The relative impact of the drivers of wealth distribution, 1995-2005 Last five years Next five years World trade + +

Self-employment - +

Taxation + +

Labour market de-regulation ++ +

Executive stocks and options ++ +

Technology entrepreneurs + -

Attitudes to saving ++ +

Net effect ++ +

NB ‘Plus’ signs indicate that these factors will create a more uneven distribution of wealth, increasing the share of financial wealth of the top twenty percent. ‘Minus’ signs show factors reducing wealth inequality. Source Future Foundation The top deciles enjoy proportionally greater gains, as they have done in the past. This is down to these factors and the better yields the financial products used by these groups tend to have. Over this ten year period, the top decile is expected to see its financial wealth increase by a half in real terms, the ninth decile by slightly less than a half. The lower wealth deciles are assumed to gather some financial wealth over this period, taking them above the trace amounts recorded by the BHPS in1995.


The distribution of wealth, 1995 & 2005

0 0 0 47 311 901 2,4564,798

11,627

64,343

100 150 200 300 361 1,1083,260

6,863

17,208

97,152

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

L e a s twealthy

2 3 4 5 6 7 8 9 M o s twealthy

1 9 9 5 2005

Mean decile wealth level, £, 1995 prices

Source:BHPS, Future Foundation


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The table shows the BHPS financial wealth levels for the top twenty percentiles for 1995 and the forecast wealth levels for these deciles in 2000 and 2005, all in current prices. Actual and forecast percentile financial wealth levels, £, current prices 1995 2000 2005 Percentile

81 7,460 11,400 16,000

82 8,723 13,200 18,000

83 9,902 15,100 20,000

84 10,099 15,300 21,000

85 10,857 16,500 23,000

86 11,833 18,100 25,000

87 12,809 19,600 27,000

88 13,671 21,200 29,000

89 14,532 22,400 31,000

90 16,271 25,100 35,000

91 19,031 28,300 40,000

92 21,345 31,800 45,000

93 24,449 36,800 52,000

94 28,934 44,700 62,000

95 34,349 52,700 73,000

96 42,472 64,600 90,000

97 53,561 82,500 115,000

98 69,239 106,000 150,000

99 103,171 158,000 223,000

100 252,566 389,000 555,000

Source BHPS, Future Foundation The table shows that for the £50,000 bracket, 4% of the population would have qualified in 1995, around 6% qualify now and 8% will qualify in 2005. So, the ‘mass affluent’ population will roughly increase by a third over the next five years. For the £25-50,000 group, around 11% of individuals qualify now, and around 15% will qualify in 2005, an increase of just over a third. Summary • The rate of financial wealth accumulation over the next five years will slow

slightly compared to recent rates of expansion. The effects of labour market deregulation, executive stocks and options and technology entrepreneurship will be less pronounced into the medium term;

• The level of financial wealth in the UK is forecast to increase by 4.0% annually in

real terms, and by 6.7% annually in nominal terms. This represents a slight slow down in growth shown during the 1990s;

• Across the financial wealth spectrum, the top deciles will enjoy the greater

increases in wealth holdings. The top decile is expected to see a 50% increase in


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nominal financial wealth, the ninth decile, a little less than 50%. The lower deciles are expected to gather some financial wealth, taking them above the trace amounts recorded in the surveys.

Conclusion: These are prosperous times. Since 1980 the financial wealth of households has more than trebled in real terms, and the growing tendency to plan and save has helped the UK economy to grow at the same time as individual’s wealth holdings. Having a fairly substantial amount of accessible wealth is no longer the rarity it used to be. In five years time, almost 1 in 6 of the adult population will have more than £25,000 in liquid assets. However, as we have suggested, high liquid assets are no guarantee of overall wealth, and may only exist to provide a small and much needed income. Of course, there are others in this group for whom liquid assets are just the tip of the iceberg. The ‘mass affluent’ span a wide range of economic circumstances, but very few are struggling to get by. This report has revealed that the development of wealth has gone hand in hand with the development of new values and aspirations in our society. So, although the majority of the ‘mass affluent’ are now over fifty, having earned their wealth through years of saving whilst working in demanding careers, their aspirations are a far cry from those of the traditional retiree. For the ‘mass affluent’, spare time is about activity, self-fulfilment, and engagement with community, rather than relaxation and escape. The ‘mass affluent’ pose a question for us all, about the meaning of money. Once we are wealthy enough to go beyond ‘getting by’ from month-to month (as increasing numbers of us are), do we continue to focus on material possessions and personal wellbeing? Or does a model of self-fulfilment emerge that is just as much about engaging with broader issues and challenging ourselves with new experiences as it is about perfecting our personal environment? Our study of the development of wealth and the emerging ‘‘mass affluent’’ of the UK suggests very strongly that greater affluence tends to broaden horizons and deepen aspirations, in society and individuals alike. As disposable wealth becomes more common, it is no longer ‘how much?’, but rather what you do with it that counts.


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Appendix 1: Thumbnail sketches of the ‘mass affluent’: The ‘mass affluent’ can be broken down into five main groups based on age and gender: Chart 56:

These five groups can be broken down by household type and working status to give an outline of the life circumstances of the ‘mass affluent’ within each group. Chart 57:

.

Who are the middle rich? - a summaryof the age / gender of those with over

£50,000 in liquid assets

0% 100%

Under45s

Womenaged65+

M e naged65+

Women a g e d45-65

M e na g e d45-65

14.8% 12.3%21.7%20.1%31.1%


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Working status

Household type

Working status

Household type

Working status

Household type

Working status

Household type

Working status

Household type

Single Couple no kidsCouple with dep/ non-dep kids Single parent/ otherEmployee Self-employedUnemployed / other nonemployed Retired

Under 45s

Women agee 65+

Men aged

65+

Women

aged 45-65

Men aged45-65

Household types:

Working status:



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Summary: The under 45s: Although only about 15% of the ‘mass affluent’ fall into this group, they have quite distinctive characteristics. 73% of this group are living as part of a couple, and more than four out of five of these couples have children. A further 6% are single parents. The remaining 19% are living on their own. 81% are in work, with 53% AB’s. Of the others, almost all are non-employed rather than unemployed. Men aged 45-65: This is the largest single group. Interestingly, almost all (91%) are living with a spouse or partner, and 34% have children in the house. Over one third have taken early retirement already. One in five are self employed and 36% are employees. Women aged 45-65: This group makes up one in five of the ‘mass affluent’. Whilst the proportion who live with a partner/spouse is similar to that of men aged 45-65, (55%), the proportion with children in the household is very much smaller (20%), probably reflecting generally earlier childbirth on the part of women. Just under half are in work, and 30% are retired. Of the remainder, only 3% are unemployed, with 17% non-employed in one way or another. Men aged 65+ This is the second largest group, representing nearly 22% of the ‘mass affluent’, and is characterised by considerable consistency in household type and work status. Three-quarters of this group are living with a partner only, and only 17% are single. 88% of this group are retired, with the remainder consisting of 3% employed and (notably) 9% self-employed. Women aged 65+ This is the smallest group of the five, accounting for one in eight of the ‘mass affluent’. The most significant difference with the 65+ men is that only four in ten are living with a partner, with 56% living on their own. This follows a pattern already appearing in the 45-65 age group, and means that women may be more influential in the household decisions of the ‘mass affluent’ than one would suspect. This is because almost all ‘mass affluent’ men are living with a woman, but a large proportion of ‘mass affluent’ women are living without a man. The other notable tendency in this group is that one in four consider themselves non-employed rather than retired, something we do not observe with the male 65+s.

the emergence of the ‘mass affluent’ - inscape · 2.1 basic characteristics of the ‘mass...

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