Households' wealth has converged in the euro area

Households' average net wealth in the euro area as a whole fell by around 10% in inflation-adjusted terms between 2010 and 2014 according to the European Central Bank's Household Finance and Consumption Survey (HFCS). This contrasts with Germany, where net wealth increased during the same period. This was due to contrasting developments in house prices as well a number of structural differences.

The study aims to measure euro-area households' financial situation and consumption behaviour. The first survey of this kind was conducted back in 2010. More than 84,000 households in 18 euro-area countries as well as in Poland and Hungary were surveyed between 2013 and 2014 in the second wave of this study, the results of which have now been published. Using the data from both waves of the study, researchers are now also able to analyse changes in the distribution of wealth over time. The data for Germany are taken from the German Panel on Household Finances (PHF) undertaken by the Bundesbank.

Falling house prices depress wealth

As the latest figures show, euro-area households' average net wealth in 2014 was €223,300. Net wealth quantifies the amount of financial and real assets after deducting debt. Net wealth has declined by 9.6% since the first wave of the survey for 2010.

The net wealth of the median household fell by 10.5% to €104,100 during the same period. The median indicates the value separating the higher half of the overall sample of households from the poorer half. It therefore tends to describe the situation of a typical household, while average wealth can be biased by the existence of very wealthy households.

The decline in net wealth is closely related to house price developments. Roughly half of households' overall wealth in the euro area consists of owner-occupied housing. With the outbreak of the financial and sovereign debt crisis, there was a sometimes considerable fall in house prices in many member states. These losses in value are reflected in households' lower net wealth.

Households in Germany increase their wealth

By contrast, net wealth increased in Germany. On an average of all households, inflation-adjusted net wealth grew by 2.4% to €214,300 between 2010 and 2014. This means that German households are slightly below the average for all euro-area countries of €223,300.

Median net wealth in German went up during the same period by 10% to €60,800. Germany therefore experienced the sharpest rise in net wealth of all countries surveyed for the HFCS. Even so, median net wealth in Germany remains at a comparatively low level. Estonia, Latvia and Slovakia are the only countries where the figure is lower. The countries with highest figures for median net wealth are Luxembourg at €437,000, Belgium at €217,900 and Malta at €210,000.

Structural differences

When assessing such contrasting developments, structural differences between the euro-area member states play an important role. Real assets, for example, account for more than four-fifths of the wealth of all surveyed households, comprising mostly real estate. In the euro area, however, Germany is among the countries with the lowest percentage of homeowners. The figure for Germany is 44%, compared with 60% for the euro area as a whole.

Differences in wealth also arise owing to the impact of differing systems of social benefits and pensions. Claims from statutory and occupational pensions are not counted towards wealth as defined for the purposes of the HFCS. Furthermore, social security funds cover, in principle, many major life risks, such as unemployment, illness and provision for retirement. They therefore reduce major traditional motives for individual saving and building up wealth.

Within Germany, it is, moreover, still possible to identify marked differences in households' wealth between the western and eastern parts of the country. In western Germany, median net household wealth is still well above that of households in eastern Germany.

Households in Germany are, furthermore, smaller than the euro-area average. The figure for single-person households in Germany is 40%, while the average for the euro area as a whole is 32%.

Almost no change in inequality

Despite the decline in net wealth, there has not been any substantial change in inequality in the euro area. One of the ways to measure inequality is by using Gini coefficients. These measure how equally values, such as for wealth, are distributed. A Gini coefficient of 0% stands for a maximum equality among values, and a Gini coefficient of 100% expresses the maximum inequality of the distribution.

For euro-area households' net wealth, the Gini coefficient for 2014 was 68.5%. The rise of 0.5 percentage point compared with 2010 is so small that it lies within the range of possible measurement error. For Germany, the Gini coefficient for 2014, at 76%, showed no change from the first wave of the survey, as was revealed in the national PHF study which was published earlier, in March 2016.