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Understanding Differences in Household Financial Wealth between the United States and Great Britain

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By: James Banks, Richard Blundell, James P. Smith

In this paper the authors describe the household wealth distribution in the U.S. and the U.K., 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, the authors show that the median U.S. household accumulates more financial wealth than its U.K. counterpart. They explore a number of alternative reasons for these differences and reject some explanations as implausible. Some of the observed differences are due to what the authors refer to as "initial conditions," in particular previously high rates of corporate equity ownership in the U.S. 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.

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Pages: 39

Originally published in: Journal of Human Resources, v. 38, no. 2, 2003, pp. 241-279.

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