In June 2016, we released information about the net worth of New Zealanders by looking at their household assets – financial and non-financial – and their liabilities. This article looks at net worth (or ‘wealth’) in more detail by seeing if there are differences in the wealth of different ethnic groups.
We aim to answer four questions:
- What is the net worth of ethnic groups in New Zealand?
- How does the net worth of ethnic groups compare by age?
- How much do different ethnic groups own and owe?
- Are there differences between ethnic groups in their assets and liabilities?
Note: we are discussing the assets of individuals. The survey did not collect the value of any assets or debts that are communally owned, such as Māori land. Māori who live on their ‘papakainga’ or marae may own their own houses but the land is normally owned by their Māori/marae land trust entity. Although Māori maintain their kaitiakitanga (guardianship) as stewards of the land, Māori do not see themselves as owners of the land; rather, they belong to it, are part of it, and they protect and preserve it for future generations. We do not include these concepts of ownership – or others similar to it – in this article.
Household Net Worth Statistics: Year ended June 2015 used the ethnicity total response method to gather ethnicity information. This means people could identify with more than one ethnic group and were counted once in each group reported. The main groups are: European, Māori, Pacific people, Asian, Other.
The ‘Other’ ethnic group includes ‘New Zealander’ responses, MELAA (Middle Eastern, Latin American, African) ethnicity responses, and all other ethnicities not included elsewhere.
What is the net worth of the different ethnic groups in New Zealand?
Net worth (assets minus liabilities) increases with age as, generally, people accumulate wealth over their life time. Consequently, the wealth profile of different ethnic groups will be affected by their differing age structures. This makes direct comparisons between ethnic groups misleading.
To mitigate the effects of the Māori and Pacific populations having a much younger age structure than the total population, we adjust for this through age standardisation. All medians in this article are age standardised.
Figure 1 shows how age standardisation affects the median net worth of ethnic groups.
Even after removing the effects of age structure on the ethnicity data, it is evident there was a large difference in the median net wealth of European people compared with other ethnic groups. The median net wealth of European people was $114,000, more than three times that of the Asian population ($32,000), five times that of Māori ($23,000), and nine times greater than Pacific people ($12,000).
The median personal net worth for the total population was $87,000.
How does the net worth of ethnic groups compare by age?
Net worth increases with age across the whole population. Young people usually don’t have assets but they may have debts, such as education loans. As people get older they start accumulating assets, while still having debt – most of it related to property. People then generally start paying off their debt and by the time they reach the age of 65, most debt is paid off. They also tend to own their own home outright or have retirement savings by the time they reach retirement age.
This pattern was similar across ethnic groups (see figure 2), but the level of net worth differs between groups. The results from this survey provide a snapshot of wealth at a moment in time. Different age groups have accumulated their assets and liabilities in different time periods; times when it may have been more – or less – easy or difficult to do.
In the youngest age group, ethnicity had no effect because the median net worth across all ethnic groups was very low. This is due to not having built up assets but having debts, such as education loans.
In the 25 to 44-year age group, differences between ethnic groups started to emerge. The median net worth of European people in this age group was $62,000, while Asian and Māori people were two-thirds ($42,000) and one-third ($20,000) of this value, respectively. Pacific people in this age group had a median net worth of $16,000.
When we compare the 25 to 44-year age group with the 45 to 64-year age group, Māori in the older group had triple the net worth of the younger group – a median net worth of $61,000 compared with $20,000. The contrast was even greater for European people aged 45 to 64 years. This group had more than four times the net worth of the younger age group, who had a median value of $266,000.
By the time people were 65+, they had generally paid off their debt and consolidated their assets. There was less change in median net worth between the 45 to 64-year and 65+ age groups than between the younger age groups, across all the ethnic groups.
The European median net worth for people aged 65+ was $317,000, 19 percent higher than for Europeans aged 45 to 64 years ($266,000). There was no significant difference between the European and the Other ethnic group in the two older age groups.
How much do different ethnic groups own and owe?
Figure 3 provides a picture of the median value of people’s assets compared with their liabilities. Note: these are individual assets only, and do not include other ownership arrangements (eg Māori collective assets).
European was the ethnic group with the highest median values for both assets and liabilities – $192,000 in assets and $32,000 in liabilities. Pacific people had the lowest median values for assets ($22,000) and liabilities ($10,000).
Different home-ownership rates affect the wealth profiles of ethnic groups.
Changes in home-ownership patterns 1986-2013: Focus on Māori and Pacific people used age-standardised census data and found the home-ownership rate in 2013 for Māori was 35.0 percent, and for Pacific people it was 24.4 percent. In comparison, the European home-ownership rate was 54.6 percent.
In Household Net Worth Statistics: Year ended June 2015, home-ownership rates were similar to these findings, but also showed rates for the Asian (44 percent) and Other (50 percent) ethnic groups. This release also indicated the house we live in is our biggest asset. Therefore differing home-ownership rates explain some of the disparity in median asset value between ethnic groups. Home-ownership also contributes to debt levels through mortgages on these homes. Figure 4 shows the percentage of each ethnic group with real estate assets and loans.
Are there differences between ethnic groups in their assets and liabilities?
Real estate was the most valuable asset for people in all ethnic groups. The median value of real estate assets was similar across all ethnic groups, and ranged from $164,000 for Māori to $237,000 for the Asian population.
European was the ethnic group with the highest median asset value in consumer durables and valuables (eg vehicles, household contents, antiques, and jewellery), at $39,000; Pacific people had the lowest, at $10,000.
The median value of pension funds was similar for all ethnic groups, ranging from $7,000 for Pacific people to $10,000 for European people and people of the Other ethnic group.
European people also had the highest median asset value of any ethnic group for ‘other assets’; that is: bonds and other debt securities, equity in businesses and trusts, shares and other equity, mutual funds and other investment funds, life insurance funds and annuities, and other household financial assets.
Figure 6 shows the pattern of median real estate loans (liabilities) roughly mirrors that for median real estate asset values. Māori people had the highest real estate debt-to-asset ratio, with 47 cents of mortgage debt for every one dollar invested in real estate, followed by Asian people with 41 cents.
The European and Other ethnic groups had the lowest real estate debt-to-asset ratio, with 26 cents and 25 cents of real estate debt, respectively, for every dollar invested. Pacific people had 28 cents of real estate debt for every dollar of real estate.
Māori and Pacific people had lower median values of education loans than the other ethnic groups, at $10,000 and $9,000, respectively. Education loan debt is more common in the 15 to 24-year age group, where it accounts for 70 percent of young people’s debt.
Pacific people were the ethnic group with the highest median value of ‘other loans’, at $4,000. This category includes consumer durable loans, other investment loans, and other loans and liabilities.
Net worth increased with age across the whole population, but the level of change differed for different ethnic groups.
Ethnicity had no effect on net worth in the youngest age groups – it was low for everyone. Young people have not yet built up their assets but may have debts, such as a student loan.
Later in life, they do acquire assets, while most of their debt relates to housing. This is when differences between ethnic groups emerged. As the house we live in is our biggest asset, differing home-ownership rates explain some of the disparity in median net worth values for different ethnic groups.
Over time people paid off debt. They were mostly mortgage-free by 65 years, owning their own home outright and with retirement savings.
In this article, we discussed only individual wealth. Doing this does not take into account that Māori may also share in communal and tribal assets, such as land or wealth that reflects Treaty of Waitangi settlements.
In addition, some ethnic groups may consider concepts other than those measured to contribute to their wealth.
Half of Kiwis in debt, with most debt in properties further explores the debt of New Zealanders.
Published 4 November 2016