Asset wealth and consumption: weakly correlated in France, strongly in the United States

ousehold wealth has posted major gains in many countries inrecent years, through investment in financial and non-financialassets, but also—and mainly—thanks to the rising value of initialassets, particularly real estate.Asaresult,householdconsumpttionmayhavebecomemoresensitiveto fluctuations in asset prices. But an increase or decrease in wealthhas a far smaller impact on consumption in France than in the UnitedKingdom and, even more so, the United States. For every unit ofadditional wealth measured in local currency, Americans spend anaverage 5.8 cents per dollar more in the long term, the British 3.6pence per pound, and the French 0.4 eurocents per euro. As apercentage of income, asset size is of comparable magnitude inFrance and the U.K., and smaller in the U.S. However, it is not thedecisive factor. Risk aversion and the opportunities for increasingconsumption in the event of wealth appreciation are more effectiveexplanations of the differences between the three countries studied.At a time when the real-estate crisis in the U.S. and the real-estateslowdown in France are affecting household wealth, these estimatessuggest that a contraction in personal assets should have a far milderimpact on consumption in France than in the U.S. and U.K.