During the boom, bank wealth reports generally put the Irish second to Japan as the wealthiest on earth. The data was one thing but in Japan where a third of employees were "temps," earning less than the Irish minimum wage, who could be dismissed with a day's notice and in Ireland where the average annual industrial wage was €32,000, beyond the Insiders in both one-party ruled democracies, the reality simply was out of sync with the message. Irish National Bank has today published a more sober wealth report for changed times, which says, that  the accumulated wealth of the average Irish household has declined by €153,000 over the last two years, equivalent to a fall of over 20%. Average household debt has continued to rise and reached €133,000 in 2008 - up from €128,000 at the end of 2007. 

A €10,000 investment in Irish shares in December 1998 would be worth only €5,000 by the end of 2008. If the same investor had invested in the US in 1998, $10,000 would have fallen to $9,343, while a corresponding
£10,000 investment in the UK would have fallen in value to just over £8,0007

NIB says 2009 has seen Irish private savings rise to remarkable levels - estimated to be 10% of disposable income - up from a low of 3% in 2007; Aggregate household wealth in Ireland fell by €150 billion in 2008. The bank says by the time the housing market bottoms out in 2010, the aggregate loss in wealth from its 2006 peak is likely to be significantly higher than this. Irish households need to diversify their wealth by planning for a savings environment with historically low interest rates, and learn to recognise signs of recovery in the world’s markets.

The new National Irish Bank report, ‘The Emerald Isle – Wealth in a Downturn’ shows that, after a long period of strong growth, 2008 saw a dramatic reversal in Irish wealth holdings, with further declines anticipated in 2009. While aggregate household wealth peaked at the height of the property boom, the effect of the economic crisis reduced this by €150 billion in the twelve months to the end of 2008. The total loss in wealth over the full property cycle is likely to be significantly higher than this.

According to Garvan Callan, Head of Wealth Management, National Irish Bank “Irish households are managing their wealth through unprecedented times, and are reacting by rapidly increasing their rate of saving. Caution is the key word though, as savers should be thinking beyond the very short term, and plan their investments in the context of today’s low interest rate environment. Interest rates are at their lowest for 300 years, and are likely to remain relatively low for a protracted period. For many households, higher savings reflect greater uncertainty, and these households should maintain savings in a liquid, secure manner.”

Consumers are also cutting down on more modest expenditures, Callan commented. “Irish households are saving by buying less. They are switching where they shop and are buying cheaper products.”

While the fall in retail spending in Ireland of over 8% indicates that consumers have increased their precautionary savings, there are some products that continue to be demanded, even during a recession. According to recent Nielsen research, recession-proof product categories in Ireland include a lot of the basic necessities, including milk, tea, butter, bread and cream. On the other hand, toiletry products, such as air fresheners, toothbrushes, shower gels and deodorants, are proving to be highly sensitive to the recession, with sales down significantly.

Households are turning in greater numbers to private ‘own-brand’ goods, which are on average 33% cheaper than branded products. The share of private label goods hit an all time high in terms of the share of consumer spend in September 2008. The growth in private label sales is most concentrated in frozen foods, household products and general groceries, with 80% of all supermarket purchasers reporting that they buy private label goods.

According to Callan “At the end of 2008, average Irish household wealth was €539,000, compared to €646,000 at the end of 2007, and €693,000 at the peak of the housing market in 2006. Therefore, the accumulated wealth of the average Irish household has declined by €153,000 over the last two years, equivalent to a fall of over 20%. Excluding owner-occupied housing, average household wealth is now €252,000, compared to €308,000 at the end of 2007.“

The corresponding level of household debt has continued to rise, however, and reached €133,000 in 2008 - up from €128,000 at the end of 2007. This combination of falling assets and rising liabilities has squeezed the net worth of Irish households, which has fallen by almost 30% since 2006. The average net worth of Irish households was €406,000 in 2008, down €145,000 from its peak. Households have responded by greatly increasing their savings rate over the last six months, which is thought to have reached 10% of income in January.

Garvan Callan concluded, “Our advice to customers, especially in the current economic environment is to diversify their assets as much as possible and to try to recession-proof their portfolio through smart wealth management. If Irish people want to achieve good investment returns in the future, while also protecting against the volatility that we’re seeing today, they’ll need to continue to invest in a broader pool of assets than they have in the past."