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

Abstract

In this article, I describe the portfolio structure of poor households within the euro area (EA) using microdata from the Household Finance and Consumption Survey (HFCS), the Luxembourg Wealth Study (LWS), and the Luxembourg Income Study (LIS). My approach differs from existing ones in that I analyze the (net) wealth‐poor instead of the income‐poor households. I am able to identify households in the bottom net wealth decile and study their portfolio structure. From a methodological point of view, my 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. As consumption can be financed from wealth and income, an indicator combining wealth and income may be a solution. I 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, highly 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.