Poverty in Europe: Sociodemographics, Portfolios and Consumption of Wealth Poor Households

In this paper we describe the portfolio structure of poor households within the euro area using micro-data from the Household Finance and Consumption Survey (HFCS), the Luxembourg Wealth Study (LWS) and the Luxembourg Income Study (LIS). Our approach differs from existing ones in that we analyse the (net) wealth-poor instead of the income-poor households. We are able to identify households in the bottom net wealth decile and study their portfolio structure. From a methodological point of view, our study shows that a poverty indicator based on households net wealth needs to be designed and interpreted with great care. Given that wealth accumulates over time and (high income) households can borrow against their future income stream, it is not clear whether low net wealth holdings are really indicative of being poor, for example in the sense of material deprivation or consumption opportunities. Since consumption can be financed from wealth and income, an indicator combining wealth and income may be a solution. We find significant heterogeneity in the portfolios of households in the bottom net wealth decile across countries. The characteristics of the group of households with low wealth are different across countries as well. Real assets are held by fewer less wealthy households than financial assets and almost all wealth-poor households own deposits and sight accounts, but only a few have mortgage debt. Wealth-poor households are, on average, smaller than other households and their heads are younger. Additionally, less wealthy households are not the unemployed households with low education levels. In some countries high educated household heads and full-time employees belong to the wealth-poor. The poor households spend, on average, about 20 percent of their gross income on food.