Aktia Pankki Oyj : Is the Swedes’ eagerness to invest the key to building wealth?

The Swedes are defeating the Finns when it comes to net assets

The reported net assets of a Swedish adult are twice as high as those of a Finnish adult. The annual Global Wealth report compiled by the Swiss bank Credit Suisse compares the net assets (assets minus debts) of adults in different countries. According to the report published in June last year, the average net assets of a Finnish adult in 2020 amounted to USD 167,700, while the net assets of a Swedish adult amounted to USD 336,000.

In Finland and Sweden, the accounting practices of the national economies differ and this explains some of the differences. In Finland, the pension savings of hundreds of billions of euros, managed by companies like Ilmarinen and Varma, for example, are recorded under the public sector. In Sweden, the practice is different because pension savings are recorded under the household sector, i.e. as "assets" of ordinary consumers. However, this does not change the big picture, which is that the Swedes are clearly wealthier than Finns.

Investments only a small part of the total assets

However, the investment eagerness of the citizens cannot explain these differences in wealth. On average, Finnish households have invested 8.9% of their total wealth in shares and funds, whereas Swedish households have invested 12.7%. The difference is clear, but the share of the total assets is too small to explain such a large difference in assets.

The greatest difference lies in the competitiveness of the economies

The central indicator of the countries' international competitiveness is the current account balance which measures, for example, the difference between the export and import of products and services. If the difference is positive, the inflow of money into the country is greater than the outflow from the country. In other words, the country builds wealth when the current account balance is positive.

This key indicator of the national economy also shows the greatest difference between Sweden and Finland. Last year, Sweden's current account balance surplus was EUR 27 billion, while Finland's was only EUR 2 billion. A long-term comparison shows a significant difference between the countries. Between 2011 and 2020, Sweden's current account balance surplus was on average 4.3% while Finland's current account balance was 1.2% in deficit in relation to GDP, i.e., the size of the national economy.

In other words, more money flows to Sweden from abroad because of its greater competitiveness. This money is channelled to households or adults in different ways. The money gives, for example, better opportunities for export-related companies to hire employees or distribute profits to their owners. Some of the assets thus increase the assets of Swedish adults or households.

A better allocation of investments would increase assets

A better allocation of household assets from non-productive objects, such as deposits, to more productive objects, such as shares, would help to increase the wealth of Finns. This, too, would unlikely be enough to bridge the differences in the wealth of private individuals in Sweden and Finland. It would require broader reforms that promote the competitiveness of the entire national economy.