The average net wealth of the median Luxembourg household fell by 15% from 2021 to 2023 once inflation is taken into account, according to a working paper from the country’s central bank, the Banque Centrale du Luxembourg (BCL).
A median household is one that sits exactly in the middle of the wealth distribution system – richer than half the country, poorer than the other half. In 2021, the median Luxembourg household had net wealth of €718,000. By 2023, the figure was €676,000, or a 6% decline.
If one were to account for inflation the decline is even steeper at 15%, a figure that a working paper published by the BCL this week describes as statistically significant.
The BCL attributed the decline to a “reduction in value of both real assets (like property) and financial assets”.
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It noted that 62% of households in Luxembourg own a property. The average decline in value of the main residence between 2021 and 2023 was 2.2%, while that of a secondary property fell by 10.6%, dragging household wealth downwards.
The scale of that pressure becomes clear from the balance sheet’s composition. Real assets – predominantly representing property – account for 81% of the value of all assets held by households in Luxembourg. When property moves, household wealth moves with it.
The study also notes that the relatively modest performance of stock markets, including the Euro Stoxx 50, strained household net wealth.
However, this is likely to have had less of an impact on median household wealth because financial assets account for only 19% of the value of total household assets.
Within that share, investment funds and listed shares accounted for only 28%, while households preferred to keep a large chunk – 45% – of their financial assets in bank deposits.
Incomes also stagnant
Real incomes, after accounting for inflation, were stagnant between 2020 and 2022, according to the study.
Average gross household income reached €125,000 in 2022, up 8% in nominal (without accounting for inflation) terms since 2020.
In real terms, however, there was no increase because of the offsetting impact of rising prices.
Luxembourg’s wage indexation system – which automatically adjusts salaries to rises in the cost of living – ensured households were not left behind in nominal terms. But indexation tracks inflation, it does not outrun it.
The gap between homeowners and renters is worth noting here. On average, renters earned significantly less than households that owned their home.
Overall, Luxembourg households are carrying less debt than they were two years ago. The average household debt fell from €161,000 in 2021 to €150,000 in 2023.
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But for those who do have debt, the burden has grown heavier. As interest rates rose, monthly repayments increased, even if the total amount owed fell. The share of income that mortgaged households spend on repayments has risen continuously since 2010, reaching 19% in 2023.
The pressure is most visible among those who bought property near the peak of the market. For the youngest households, the value of their outstanding mortgage is nearly equal to the current value of their home. For those in the lowest income bracket, it exceeds it.
