Inequality and the perception of wealth in Poland

KRUKOWSKA Nierówności a percepcja bogactwa jamnik

The greater the wealth inequality, the greater the differences in the perception of the income level that is seen as affluence, this is the conclusion of a study commissioned by Deutsche Bank Polska.

A wealthy Polish person is someone with net earnings from PLN10,000-19,000 (EUR2,310-4,390) per month. These amounts are the lower limit of affluence indicated by 40 per cent of Poles. For a quarter of the respondents, a monthly net income between PLN4,000-10,000 (EUR924-2,310) already qualifies a person to be considered wealthy. Only 14 per cent believe that in order to be called a „rich person” one should be earning PLN50,000 (EUR11,552( or more each month. This opinion is mostly shared by people who are over fifty years of age (and therefore have more life experience), who are better educated, and who live in big cities.

Such low ceilings indicated by Poles as the lower limits of affluence seem surprising. Especially if we consider the fact that, as the Statistics Poland recently reported, the average monthly remuneration in the enterprise sector in March 2018 amounted to PLN4,886.56 (EUR1,129). However, if we take a closer look at the statistics, an income in the amount of PLN4,000 (EUR924) and more was mainly seen as „affluence” by young people (18-29 years old), people from villages and small towns, and people who earn a lot less themselves—even below PLN1,000 (EUR231) a month. Those who earn above the national average believe that wealthy people are those whose monthly salary is at least PLN20,000 (EUR4,621) net.

Growing wealth inequality

According to Małgorzata Bombol from the Warsaw School of Economics, this enormous variation in the perception of the threshold of affluence among Poles results from the very high wealth and income inequality in Poland.

The differences in people’s incomes usually result from the differences in their work productivity, education, seniority and working time, as well as the occupied position. Wealth inequality, on the other hand, means that an increasingly small number of people are amassing more and more assets in the form of, for example, real estate.

When it comes to income inequality measured by the Gini coefficient, theoretically the situation in Poland is improving. The Gini coefficient is a measure of income distribution used across the world, in which the value of 100 (alternatively: 1) indicates a society with extreme inequality, and the value of 0 indicates absolute equality. In the years 2004-2016, the Gini coefficient in Poland dropped from 37.6 to 30 per cent (in 2016 its value was 30.4 per cent).

While income inequality has slightly decreased, wealth inequality is constantly growing. According to Poland’s central bank, NBP report entitled „Household Wealth in Poland”, in 2016 the top 10 per cent of the most affluent households held as much as 41 per cent of the total net assets, while the net assets of the bottom 20 per cent of the poorest households accounted for barely 1 per cent of all household assets.

Wealth inequality in Poland is higher than income inequality, as evidenced by the much higher value of the Gini coefficient for net assets (57 per cent) than for income (30 per cent).

The problem with measures of wealth

Although wealth inequality in Poland is increasing (in 2014, the concentration of assets in the wealthiest households was 4 per cent lower) it is still relatively low compared to other developed countries. According to a forecast published in April 2018 by the British research institute House of Commons Library, by 2030 the wealthiest 1 per cent of world’s population will control 64 per cent of the world’s wealth. Since the economic crash of 2008, their assets have been growing by about 6 per cent per year—twofold faster than the wealth of the remaining 99 per cent of the world’s population. In 12 years it will amount to USD305 trillion (today it is USD140 trillion).

Putting aside the reasons for the concentration of wealth (e.g. lower taxes on capital than taxes on labor, policy of low interest rates), it is not surprising that with such a scale of inequality, the perception of affluence around the world is diverse. For example, a survey conducted in 2017 by Koski Research for Charles Schwab indicates that Americans—who are considered to be the wealthiest nation in the world due to the highest number of billionaires—have a hard time determining their threshold of affluence. On average, this threshold is defined as a minimum of USD2.4m in assets, i.e. almost 30 times the current median net worth of a single household.

Interestingly enough, while 27 per cent of Americans define „wealth” in terms of the amount of money held (the value of assets), as many as 24 per cent define wealth as the „joy of life”, and 22 per cent define it as the ability to „buy whatever one wants”. Some of them believe that a wealthy man is the one who does not need to buy a life insurance because in the event of his death the family will be secured by the assets held.

Even entities specializing in wealth such as, for example, investment banks and private banking advisors, have problems with measuring affluence. The standard measure of affluence used thus far, i.e. people holding assets in the amount between USD100,000-1m in liquid financial resources, is becoming troublesome as affluence is becoming increasingly less dependent on liquid assets. In the era of „uberization”, the possession of cash, a car, or even an apartment is no longer a reliable measure of wealth. That is because the founder of an innovative start-up, even one that is currently loss-making, has become a more attractive client for private banking than a well-paid corporate manager or owner of several apartments.

This is also evident on the example of Poland, where households theoretically are not poor when compared with the Eurozone countries. But this is mainly due to the fact that Polish wealth primarily consists of apartments (often inherited). On average Poles hold net assets of EUR60,600 which corresponds to approx. 58 per cent of the median household net worth in Europe. This means that the level of household assets in Poland in relation to certain countries of the Eurozone, where apartments are most often rented and not purchased (e.g. in order to be more flexible on the labor market and to earn more), is more favorable than would be suggested by a comparison of the GDP per capita in these countries. This mainly relates to Austria and Germany where fewer than 50 per cent of households own their primary residence.

Poles own their apartments, but have a lot less money that they could invest in order to multiply their „wealth”. Consequently, in the case of Polish households, financial assets (with a median value of EUR3,500) are less important as a component of the total assets than in the Eurozone (where the median value reaches EUR10,600). They only account for 8.4 per cent of the total value of assets, while in the Eurozone they account for 17.8 per cent.

Moreover, the research conducted by Deutsche Bank indicates, that the highest percentage of Poles earning at least PLN7,000 (EUR1,617) per month (these people are already considered to be affluent by the private banking departments of the banks operating in Poland) prefer to hold their money on their accounts or deposits. Only every tenth person invests funds, for example, in real estate. Only 2 per cent of these people expressed interest in ensuring that someone manages their finances well. Poles primarily see affluence as a sense of security, as the ability not to worry about a place to live and about making ends meet.

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