The Wealth Inequality Problem in One Chart
It’s clear that America’s financial and political systems are broken
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
It seems that people don’t agree on much these days, but there is one growing exception to that rule.
Across the board, Americans are finding that the “system” isn’t working for most people in its current state. Donald Trump and Bernie Sanders have locked into this sentiment to garner unprecedented support as outsider candidates, and there is an undeniable feeling in the air that something has got to give.
Why is there so much conviction that things must change?
The Wealth Inequality Problem
In today’s chart, we showcase the wealth inequality problem in the best way we could. The challenge with it was that literally the data goes “off” the chart with no easy way to show it.
On the chart, we plotted the “Median Net Worth” of different wealth groups between 1998 and 2013. This is based on a study that the Federal Reserve does about every three years on consumer finances.
When this data is compared in 2013 dollars:
- The Lower Class: Wealth has decreased by 26.5% for the bottom 20% of incomes
- The Working Class: Wealth has decreased by 52.7% for the second lowest 20% of incomes
- The Middle Class: Wealth has decreased by 19.1% for the middle 20% of incomes
However, one segment has shot up “off” the charts:
- The Top 10%: Wealth has increased 74.9%, soaring to a median net worth of over $1.1 million.
Then and Now
What’s changed between then and now?
We looked at this from a macroeconomic perspective to get a sense of what has changed between 1998 and today, using latest data from last month (May 2016).
- Unemployment is relatively flat between 1998 and today, but the amount of people actively looking for work has dropped by 4.5%. With more workers discouraged since the 2008 crisis, Workforce participation has dropped steadily. Economists also say this is likely due to a rapidly aging population.
- Inflation has averaged between 0% and 1% over the last three years. It is currently sitting at 1%. In 1998, inflation was closer to the Fed’s 2% target.
- The Federal Funds Rate, which is the rate that generally acts as a backbone for interest rates across the country, has dropped like a rock. Right now it was effectively 0.37% in May 2016, way down from 5% to 6% that existed for most of the 90s.
- National Debt has almost quadrupled in nominal terms from $5.5 trillion (1998) to $19.3 trillion today. In real terms, taking into account inflation, it has more than doubled.
- Money Supply (M2) has increased from $4.2 trillion (1998) to $12.7 trillion today. About $5 trillion of this increase came after the 2008 crisis.
And while there are many factors that go into wealth inequality, we believe that some of the above factors are worth exploring and understanding in detail.
For example, who benefits from 0% interest rates the most?
Who owns assets like real estate or stocks that have their prices propped up by these policies?
Who can borrow capital at low rates to invest or speculate on rises in these prices – is it the people that already have money, or the people without any?
Where does all the extra money that is added to the system go?
What is each $1 trillion of new U.S. debt spent on, and do the benefits of this added debt outweigh the costs?
Ranked: The Best and Worst Pension Plans, by Country
As the global population ages, pension reform is more important than ever. Here’s a breakdown of how key countries rank in terms of pension plans.
Ranked: Countries with the Best and Worst Pension Plans
The global population is aging—by 2050, one in six people will be over the age of 65.
As our aging population nears retirement and gets closer to cashing in their pensions, countries need to ensure their pension systems can withstand the extra strain.
This graphic uses data from the Melbourne Mercer Global Pension Index (MMGPI) to showcase which countries are best equipped to support their older citizens, and which ones aren’t.
Each country’s pension system has been shaped by its own economic and historical context. This makes it difficult to draw precise comparisons between countries—yet there are certain universal elements that typically lead to adequate and stable support for older citizens.
MMGPI organized these universal elements into three sub-indexes:
- Adequacy: The base-level of income, as well as the design of a region’s private pension system.
- Sustainability: The state pension age, the level of advanced funding from government, and the level of government debt.
- Integrity: Regulations and governance put in place to protect plan members.
These three measures were used to rank the pension system of 37 different countries, representing over 63% of the world’s population.
Here’s how each country ranked:
The Importance of Sustainability
While all three sub-indexes are important to consider when ranking a country’s pension system, sustainability is particularly significant in the modern context. This is because our global population is increasingly skewing older, meaning an influx of people will soon be cashing in their retirement funds. As a consequence, countries need to ensure their pension systems are sustainable over the long-term.
There are several factors that affect a pension system’s sustainability, including a region’s private pension system, the state pension age, and the balance between workers and retirees.
The country with the most sustainable pension system is Denmark. Not only does the country have a strong basic pension plan—it also has a mandatory occupational scheme, which means employers are obligated by law to provide pension plans for their employees.
Adequacy versus Sustainability
Several countries scored high on adequacy but ranked low when it came to sustainability. Here’s a comparison of both measures, and how each country scored:
Ireland took first place for adequacy, but scored relatively low on the sustainability front at 27th place. This can be partly explained by Ireland’s low level of occupational coverage. The country also has a rapidly aging population, which skews the ratio of workers to retirees. By 2050, Ireland’s worker to retiree ratio is estimated to go from 5:1 to 2:1.
Similar to Ireland, Spain ranks high in adequacy but places extremely low in sustainability.
There are several possible explanations for this—while occupational pension schemes exist, they are optional and participation is low. Spain also has a low fertility rate, which means their worker-to-retiree ratio is expected to decrease.
Steps Towards a Better System
All countries have room for improvement—even the highest-ranking ones. Some general recommendations from MMGPI on how to build a better pension system include:
- Increasing the age of retirement: Helps maintain a more balanced worker-to-retiree ratio.
- Enforcing mandatory occupational schemes: Makes employers obligated to provide pension plans for their employees.
- Limiting access to benefits: Prevents people from dipping into their savings preemptively, thus preserving funds until retirement.
- Establishing strong pension assets to fund future liabilities: Ideally, these assets are more than 100% of a country’s GDP.
Pension systems across the globe are under an increasing amount of pressure. It’s time for countries to take a hard look at their pension systems to make sure they’re ready to support their aging population.
Football Fever: Investing in the Beautiful Game
Football’s global appeal has boosted the game into a billion-dollar industry. How can fans and investors cash in on their favorite clubs?
Football Fever: Investing in the Beautiful Game
The very mention of football conjures up images of cheering fans from all corners of the world.
The global appeal of the game is undeniable, and it’s the strong support of fans that has propelled its growth into a multi-billion dollar industry.
Today’s infographic from Swissquote tracks how the sport has reached far and wide—even onto the stock exchange.
The Timeline of the Manchester United IPO
Manchester United is the largest publicly-traded football club in the world. The journey of its initial public offering (IPO) can be traced back almost 30 years.
- 1991: Man United floats on the London Stock Exchange (LSE)
It aims to raise £10 million, but falls short and finally raises £6.7 million.
- 2003-2005: Malcolm Glazer acquires ownership of Man United
This raises the club’s market capitalization to £790 million, and it delists from the LSE.
- 2012: Man United lists on the New York Stock Exchange
It aims to raise £62.8 million in this IPO, but surpasses this with a final raised value of £146.3 million. Interestingly, George Soros was the biggest investor in this deal, buying a nearly 2% stake in the club.
What makes a football team like Manchester United so attractive in the eyes of investors?
Over decades, a flourishing fan base from viewers to consumers has been the force behind the football industry’s success as a whole.
The Big Business of Football
FIFA, the international governing body of football, organizes and promotes all major tournaments. Its total revenue between 2015-2018 can be broken down into a few main components:
|Revenue Source||Amount||% of total|
|Broadcasting rights||€2,800 million||48%|
|Marketing rights||€1,500 million||27%|
|Accommodation and ticket sales||€600 million||11%|
|Licensing rights||€500 million||9%|
|Other revenue||€300 million||5%|
|Total: €5,800 million|
In fact, 83% of this total revenue came from the 2018 Russia World Cup alone. This was viewed by approximately 3.6 billion people—nearly half the world’s population.
The World Cup’s revenue even rivals the combined strength of the top five European clubs. How do the five major clubs make their money?
|Club||Matchday||Broadcast||Commercial/ Sponsorships||2019 Revenue|
As viewership climbs, broadcasting rights furiously grow too—presenting numerous investment opportunities in sponsorship on the pitch and on the screen.
Cashing in on Clubs
Manchester United (NYSE:MANU) set a new precedent for publicly-traded football clubs—with a market cap worth near €1.8 billion today.
Following Man United’s example, other major clubs have since gone public across Europe. As well, Asia presents an emerging opportunity as the sport’s regional popularity expands.
|Club||Stock Ticker||Mkt Cap (Jul 31, 2020)|
|🇮🇹 Juventus FC S.p.A||JUVE:IM||€1.19B|
|🇩🇪 Borussia Dortmund||BVB:GR||€511M|
|🇮🇹 AS Roma||ASR:IM||€320M|
|🇬🇧 Celtic F.C.||CCP:LN||€108M (£97M)|
|🇨🇳 Guangzhou Evergrande Taobao||NEEQ:834338||N/A|
|🇮🇩 Bali United||IDX:BOLA||€57M (Rp894B)|
China’s most valuable football club—backed in part by e-commerce giant Alibaba—closely matches the valuation of Manchester United.
In Southeast Asia, Bali United was the first team to go public in June 2019. Shares jumped 69% higher than the initial listing price upon its IPO. This move is already propelling more planned IPOs for more football teams in the region, such as Persija Jakarta—the 2018 Liga 1 champion—and Thailand’s Buriram United.
The Future of Football
Football has the power to stir passions and unite people—and it’s reinventing itself constantly.
The 2019 Women’s World Cup was the most watched in tournament history, with over 1.12 billion tuning in. FIFA plans to invest almost €454 million more into the women’s game between 2019-2022, and grow the number of female players to 600 million by 2026.
Additionally, the annual esports tournament eWorld Cup is taking place in Thailand in 2020—tapping into the esports boom in Asia, which hosts 57% of esports enthusiasts.
Any football fan will tell you that the beautiful game is more than just a sport. And for investors, there are a variety of ways to gain exposure to this market—meaning fans can be both personally and financially invested as it continues to grow.
Business3 weeks ago
Ranked: The 50 Most Innovative Companies
Technology1 month ago
10 Types of Innovation: The Art of Discovering a Breakthrough Product
Misc2 months ago
When Will Life Return to Normal?
Technology4 weeks ago
How Big Tech Makes Their Billions
Markets1 month ago
What’s At Risk: An 18-Month View of a Post-COVID World
Technology1 month ago
What Does 1GB of Mobile Data Cost in Every Country?
Technology2 months ago
5G Revolution: Unlocking the Digital Age
Energy2 months ago
Tesla is Now the World’s Most Valuable Automaker