Wealth per British adult has dropped by $33,000 to $289,000 since the end of June 2016..
Or has it?
We have seen the Headlines
- Britons are 10% worse-off thanks to Brexit vote www.dailymail.co.uk
- Brexit vote wipes £1.2 trillion off UK household finances in 2016 www.independent.co.uk (I disagree with this headline)
- Brexit slashes U.K. household wealth by $1.5 trillion www.money.cnn.com
But, is it correct from the point of view of an average Brit?
Those headlines come from a study on global wealth by Credit Suisse, and are based on the pound’s devaluation against the dollar since the vote to leave the EU in June.
What does that mean in plain common sense language?
What is Wealth?
Wealth is the value of your possessions or money. It is NOT your earnings, although your earning can effect Wealth over time, based on saving your income.
How have I lost 10% of My Wealth
If you have a house worth £272,000 (current median house value for UK), and that was the value before the June referendum vote, then it is probably still worth about the same. You haven’t lost anything
If you had £10,000 in the bank and haven’t used it, then you will still have £10,000 in the bank. Your Wealth hasn’t changed.
If you live overseas, and you own a £272,000 property in the UK, then your wealth is affected by the Foreign Exchange Rates, and you probably have lost something, IF YOU SELL IT. (Income from a rented property owned by someone overseas is negatively affected though, due the the FX rates).
How does the change compare to other countries?..
The Credit Suisse report showed that the Total Wealth of the UK was 14,150 billion US dollars (USD$14.15 Trillion).
They then calculated how many adults were in the UK and divided that total by the number of Adults.
That same report showed that the total Wealth of the UK was 7,184 billion US dollars in 2000.
That shows a rise of 97% in 16 years, for the UK.
US was US$42,344 billion in 2000 and US$84,784 billion in 2016. A rise of 100.2%
Comparison Result: 97% for the UK and 100.2% for the USA.. Not a big difference.
Who has actually lost this money?
Foreign owners of UK Property and other UK Assets have seen their wealth value drop, due to the Foreign Exchange rate changes. If they sell their UK assets, and transfer it to US dollars, they will end up losing over 10% of its value.
eg:
a £272,000 house in June 2016, was worth US$393,260 to an overseas owner
On 24th November 2016 that same house, still worth £272,000 was only worth US$339,320 to an overseas owner
The overseas owner has lost 13.5% on a UK property that is still the same value to a UK owner.
FX rates used:
The GBP USD exchange rate as of 24 November 2016 was 1.2475.
The GBP USD exchange rate as of 2 June 2016 was 1.4425
Why do I disagree with the headline saying ‘£1.2 trillion off UK household finances’
The UK wealth figure when expressed as a Pounds Sterling figure hasn’t actually change at all. The change is the result of the Pound being converted to the US dollar in the Credit Suisse report. The UK wealth itself, when expressed in Pounds Sterling isn’t that much different, before or after the Brexit vote.
As Credit Suisse said: ‘The changes are based on the pound’s devaluation against the dollar” not on the actual value in local currency.
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