Financial Wealth Inequality in the United States and Great Britain

In this paper we describe the household wealth distribution in the US and UK, and compare both wealth inequality and the form in which wealth is held. Unconditionally, there are large differences in financial wealth between the two countries at the top fifth of the wealth distribution. Even after controlling for age and income differences between the two countries, we show that the median US household accumulates more financial wealth than their UK counterpart. We explore a number of alternative reasons for these differences and reject some explanations as implausible. Some of the observed differences are due to what we refer to as ‘initial conditions’, in particular previously high rates of corporate equity ownership in the US and housing ownership among young British households. But since these differences existed even in the early 1980s, initial conditions only provide a partial explanation. One other partial explanation may be that due to forced and voluntary annuitization of retirement incomes, older British households face considerably less longevity risk. Acknowledgements: The first two authors gratefully acknowledge the support of the Leverhulme Trust for funding the IFS research programme entitled ‘The changing distribution of consumption, economic resources and the welfare of households’ of which this study forms a part. Co-funding has been provided by the ESRC Centre for the Microeconomic Analysis of Fiscal Policy at IFS. Many thanks are also due to NOP Financial for providing us with the FRS data used in this study. Neither the ESRC, the Leverhulme Trust or NOP Financial bear any responsibility for the analysis or interpretation of the data reported here. Smith’s research was supported by grants from the National Institute on Aging in the United States. Expert programming assistance of David Rumpel is gratefully acknowledged. Any remaining errors are attributable to the authors alone. Addresses for correspondence: [email protected]; [email protected]; [email protected];