COVID and Inequality: Wealth

In the first argument of the essay this is adapted from, we look at how the pandemic affected wealth inequality, whether it be positively or negatively.

Firstly, wealth is defined as ‘an accumulation of valuable economic resources that can be measured in terms of either real goods or money value’[1]. As mentioned previously, the metric for wealth I will use is net worth, which comes from the value of all assets owned by an individual with any debts subtracted. During the pandemic, household net worth grew 8.4%[2] in the UK, although the primary reason was not rising incomes but instead spending falling. As people were not allowed to go outside, households spent less on services such as eating out, and the household savings ratio saw an increase from 8.9% in January-March 2020 to 25.9% in April-July 2020 – the highest rise since the use of the metric began in 1987[3]. This prompted many to start investing these excess savings into the housing and financial markets, as the central bank’s low-interest rates meant saving would be pointless. In addition, the importance of garden space was highlighted during the lockdowns, as people began suffering in their confined apartments, and the combination of these factors inflated house prices, making homeowners much better off. This is made clear from the most significant contribution to household net worth: a 7.3% increase in average house prices. However, this creates a disparity in wealth between under-35s, over-represented in rental housing, and those over 65, who account for almost two-thirds of homeowners[4]. Resultantly, younger families missed out on this gain in household net worth and were left behind, creating inequality in wealth by age.

Wealth inequality at the extremes also worsened. Despite a stock market collapse in the first few months of the pandemic, causing billionaires to experience massive reductions in their wealth, within nine months, the top 1000 billionaires had recovered all that they had lost[5]. The root of this rebound is caused by the previously mentioned excess savings of middle-class households flowing into the financial markets. An over-inflated asset market meant that these billionaires regained the value of all their holdings. Asset prices increases, or revaluations, were the dominant source of wealth accumulation – accounting for nearly 80%[6] – and the top 10 richest collectively saw their wealth rise by $540 billion over this period. The pandemic led to the increase in wealth for many middle-class households, with the typical middle-class family seeing a wealth rise of £7800[7], and the wealthy elite, but those who started the pandemic with little or no financial assets saw none of the same benefits, widening the wealth gap between younger, poorer households and the rest.