When looking at international comparisons of differences in the average wealth of households, Finns lag far behind Swedes. What makes the huge difference?
Are Finns the poor nation of the Nordic countries?
On average, Finns have significantly less net worth than Swedes, Norwegians and Danes.
The difference with the Swedes in particular is startling. According to an estimate published last June by the Swiss bank Credit Suisse, Swedes are considerably richer than Finns.
The average net worth accumulated for Finnish adults was approximately USD 168,000 (current exchange rate EUR 146,500), and for Swedes USD 336,000 (EUR 293,000).
Even at the beginning of the millennium, the average net worth of Finnish adults was at the same level as that of Swedes. Since then, the Swedish pot has more than quadrupled, according to Credit Suisse. The Finns are far behind.
What exactly happened?
Wealth comparisons involve obvious pitfalls. Statistics are incomplete and data on wealth are collected in different ways in different countries. There are different tax and pension systems and ways to assess the value of homes.
Comparisons are therefore not entirely reliable and should be treated as rough estimates rather than truths.
Still, according to experts, it is undeniable that the average net worth of Finns is far from the Swedish level. Net assets are calculated by deducting liabilities from assets.
In Sweden wealth is much more concentrated than in Finland. There are plenty of really rich people in the neighborhood, but there may not be as stark differences in the wealth of the average citizen as the statistics on the average wealth of individuals might suggest.
When looking at the median wealth of citizens, Finland and Sweden are much closer to each other. The median means the wealth of the average person when all the citizens are queued up.
Credit Suisse says that the median wealth of Finns in 2020 was about USD 74,000 (EUR 64,500) and that of Swedes about USD 90,000 (EUR 78,600). In some estimates, ordinary Finns have been even richer than ordinary Swedes.
When so we are talking about the differences in the average wealth of Finns and Swedes, we are actually talking about the differences in wealth between the richest citizens.
And they are big.
The differences are partly due to the fact that the economy and productivity in Finland have grown more modestly than in Sweden. The development of the national economy is reflected in the household economy.
In addition, taxation in Sweden is lighter than in Finland. In addition to wealth tax, Sweden has also abolished inheritance tax and gift tax – partly because the richest citizens would no longer transfer their funds abroad.
However, these factors do not fully explain the differences in average wealth.
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“In Sweden, mortgages of this size are being taken into account, so it is clear that borrowers have no intention of repaying the loan in 20 to 30 years.”
One the answer can be found in how mortgages are used as a means of accumulating wealth.
Swedish economist, associate professor of economics at Stockholm University Jesper Roine One of the possible reasons behind the wealth of Swedes is that Swedes use mortgages as leverage. In Sweden, households are more indebted than in Finland.
“In Sweden, mortgages of this size are being taken into account, so it is clear that borrowers have no intention of repaying the loan in 20 to 30 years.”
Swedes are taking on debt for housing at low interest rates and are confident that housing prices will rise above the amount of the loan. In addition, working capital is invested in highly productive shares instead of loan repayments.
In Finland, loans are usually repaid by the end of life. However, the accumulation of financial assets is significantly lower.
On the other hand the Swedes are tougher risk takers. The net worth of Swedes has grown a lot, but so has the amount of debt.
In terms of assets, the amount of debt has not risen to a worrying level, according to Roine. However, in relation to income levels, Swedes have a lot of debt.
In a low-interest market, such risk-taking may prosper individuals, but if interest rates rise, the situation will change rapidly.
“And the more we have debt relative to income, the more vulnerable people are,” Roine says.
In Finland Housing prices have also risen more slowly than in the other Nordic countries.
In addition, there is strong regional differentiation in house prices in Finland. In relocation municipalities, such as Kouvola, property prices are even falling. In Helsinki and other large cities, on the other hand, housing stock prices are mainly rising.
“We have large areas of the housing market where prices have fallen over the last ten years. This is not really the case in the other Nordic countries, ”says the research director of the State Economic Research Center (VATT). Essi Eerola.
The rise in housing prices in Finland’s largest cities has been slower than in the other Nordic capitals. The housing market is behaving differently, and prices in Finland have been much more even than in Norway, Sweden and Denmark.
“Between 2004 and 2017, wealth per adult in all other Nordic countries rose really sharply, but not in Finland. And if you look at the development of house prices before the financial crisis, house prices rose sharply in other Nordic capitals. In Finland, house prices did not collapse during the financial crisis in particular, ”says Eerola.
Finns the money is largely tied to housing rather than shares.
The fact that Finns accumulate less financial wealth than Swedes is also reflected in the wealth statistics so that the average wealth of Swedes fluctuates more than that of Finns, says Professor of Finance and Chairman of the Savings Timo Rothovius.
“In the long run, the Swedes will win. The stock market performs better than housing investment. If you want to increase your wealth, you should invest in the stock market. But I don’t see these as mutually exclusive. ”
Finns also spend their funds on gambling, where the average Finn lost a loss of 300 euros in 2018. In addition, Finns keep their money in bank accounts, which for years have yielded virtually nothing in interest.
Finns have a total of about EUR 100 billion in bank accounts.
In Sweden There are different incentives for investing than in Finland. According to Rothovius, the incentives will have a positive effect on Swedish investment.
In Sweden, taxation of share savings is lighter and there are no similar restrictions in the ISK share savings account developed as an incentive. Here you can transfer the desired amount to a share savings account up to a maximum of EUR 50,000, there is no limit in Sweden. There can be many accounts in a neighboring country and there can be all kinds of instruments in the portfolio. This is not the case in Finland.
“In Finland, the share savings account was not completed until 2020, after Sweden, Norway and Denmark had it,” says Rothovius.
In his opinion, Sweden is in any way more favorable about saving shares than Finland.
“Swedes are coming home with the idea that investing is worthwhile. It is only in recent decades that we have become more acceptable to invest in stocks. ”
International asset comparisons are hampered in particular by different pension schemes.
Since the late 1990s, Swedes have been able to decide where part of their earnings-related pension contributions will be invested. There are no personal pension accounts in use in Finland.
Even if Swedes end up making bad decisions when investing pension contributions, they will not be left empty-handed. Most pension contributions are still at the fingertips of the state.
“Over time, it’s been noticed that people don’t always make good decisions,” says Jesper Roine.
Swedes also receive a letter once a year stating what kind of pension they can expect in the future. In this way, the effects of the choices are concretized to the citizens.
“It’s very pedagogical.”
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“I would love to see households allowed to prosper here as well.”
Roineen However, it is very difficult to say whether the Swedish pension system has accelerated the prosperity of Swedes.
In fact, those who have not actively invested their pension contributions have fared slightly better in the system than those who have, Roine says.
It is due, he said, to the financial illiteracy of citizens – it is not clear to the average citizen where and how to invest. For example, some have fallen into high-cost funds.
In Sweden, it has been decided to restrict the aggressive marketing of funds.
Swedish the pension system is a textbook example of folk capitalism. Would Finland need such thinking?
At least Timo Rothovius thinks it would be necessary.
“In the Nordic countries, it is generally thought that the state needs to get rich, and in southern Europe, it is thought that households should get rich. I would love to see households allowed to prosper here as well. ”
Rothovius would like to see cheaper taxation of share savings in Finland and more talk about money for schools.
“That way people would understand how to run their own finances.”
Vattin Essi Eerola is more thoughtful about reducing the taxation of share savings.
“Taxation should be considered as a whole. The Swedish equity savings account can encourage private saving, but at the same time it loses tax revenue that could do something good for everyone in Sweden. ”
Read more: Which is the goldmine of folk capitalism? Finland and Sweden are the eternal competitors in HS Vision’s international match.
Read more: It doesn’t make sense to die debt-free, says Swedish banking supervisor – Swedes become indebted and prosper at the same time
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