Climate change poses a serious financial risk to the middle class worldwide, according to a new UBS study on the financial costs of climate change and its effects on the global middle class. Financial losses among this group has the potential to undermine the world economy.
The global middle class faces high costs due to climate change, finds UBS in its study Climate change: a risk to the global middle class. One of the main reasons for this is that middle-class residents, especially in cities, are at high risk of spending more of their household budget on housing that the national average and have less income for luxuries, entertainment and household durable goods. In short: they have fewer substantial assets.
For example, in American cities most at risk of climate change such as Los Angeles, residents spend between USD 800 and USD 1,600 more each year on housing compared to a lower risk city.
At the same time, many weather-related losses remain uninsured. In the United States, 32 per cent of weather-related losses are uninsured, bringing the total sum of damages to USD 1.5 trillion in total economic losses between 1980-2014.
In Asia, this figure skyrockets: a total of 91 per cent of weather-related losses are uninsured. And among the middle class, there is a very low insurance penetration relative to property value – 0.12 per cent for China and 0.07 per cent for India. The result is that the property-dependent middle class bears the brunt of financial damages in the event of a weather disaster.
UBS looked at middle-class consumption in 215 cities worldwide and then compared consumption patterns to the level of climate-change risk in those cities. It found that most of the global middle class lives in Southeast Asia, the region with the fastest urban population growth in recent years.
A total of one billion people around the world belong to the middle class. Due to its size, spending power and economic dynamism, the global middle class enjoys considerable political influence. But climate change threatens to erode its wealth, which in turn would threaten overall economic and socio-political stability.
For instance, the U.S. Department of Defense has found that in already volatile situations, climate change can act as a “threat multiplier” by intensifying existing hostility and tensions, as was seen in the Syrian drought from 2006 to 2011, which was the precursor to the devastating civil war.
Image credit: U.S. Air Force photo by Master Sgt. Mark C. Olsen