The financial situation of households in Spain

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March 11th, 2014

Little by little, data are now being published that help to analyse in detail the impact of the recession on household finances. This is the case of the 2011 Survey of Household Finances (Encuesta Financiera de las Familias or EFF in Spanish), an excellent source of information that helps to analyse the trend in the income, assets and liabilities of households according to different characteristics.

In 2010, the median household income was 25,400 euros, 8.5% lower than in 2007.(1) However, not all households were equally affected, with the largest drops occurring among medium and low-income households. Households with an income between the 20th and 60th percentile saw approximately a 10% reduction in their real income while those with an income above the 80th percentile saw a slight increase.

The value of the assets accumulated by households decreased considerably and, in this case, the reduction was widespread throughout all income brackets. To a large extent, this was due to the loss in value of real assets, which makes up a large proportion of the wealth of Spanish households. Specifically, for all households the value of real assets as a proportion of the value of their total assets went from 89.1% in 2009 Q1 to 84.4% in 2011 Q4. Particularly relevant is the change occurring among the highest income households, those above the 90th percentile. For these, part of the fall in value of their real assets was offset by an increase in their financial assets, so that the reduction in the relative share of real assets was even greater: from 84.2% to 76.2%.

Although the value of assets had already started to decrease between 2009 Q1 and 2011 Q4, household deleveraging had not yet begun. The median outstanding debt totalled 42,900 euros in 2011 Q4 (vs. 38,700 in 2009 Q1), 62.5% of which was for purchasing the main residence and 24.4% for purchasing other real estate. The financial burden, defined as the percentage ratio of debt payments to household income, fell slightly for households as a whole, down to 18.0% (vs. 19.1% in 2009 Q1), although there was a notable rise among the lowest income households, specifically from 39.2% to 46.2%. Lastly, the EFF also highlights the fact that, between 2008 and 2011, the share of households in debt remained at around 50%, and that debt as a proportion of total assets rose by 1.2 p.p. to 11.5%.

We can only analyse the initial impact of the crisis with the data published. To obtain a complete view, we will have to wait for the EFF of 2014, which will be published in three years' time. But if we take into account the fact that, by 2011, two thirds of the total jobs lost had already been destroyed, we have an idea of the probable extent of the recession's impact on the finances of Spanish homes.

(1) The median (50th percentile) is the value that, if we ordered all citizens from the least to the most in terms of the variable in question, would have the same number of individuals above and below it. In an analysis of trends in income, assets and liabilities, the median is a better estimate of the most typical distribution values than the average as, in general, these variables have very high values for a relatively small number of households. This anomalous feature of the distribution affects the average but not the median.