Wealth in Germany up significantly

Household wealth in Germany increased between 2014 and 2017. This is the finding of a Bundesbank study regularly examining household wealth and finances (the Panel on Household Finances, or PHF). For example, households’ average net wealth increased by €18,300 between 2014 and 2017. In particular, households possessing real estate and shares benefited from the higher prices for these assets. “The findings again highlight the important role played by real estate in households’ asset holdings,” the economists write in the latest issue of the Bundesbank’s Monthly Report. As for households with owner-occupied property, the value of their real estate rose by an average of €27,000, or 12%, between 2014 and 2017. The value of shares held directly by households rose by around €5,000, or 13%. The wealth of many tenant households and poorer households also increased. According to the experts, this development was driven chiefly by higher income, which made it possible for poorer households, too, to accumulate savings.

Inequality remains high

The Bundesbank’s economists also investigated wealth inequality in Germany. “Germany remains a country in which wealth is distributed unequally between households,” the report states. This can be deduced, inter alia, from the share of wealth held by the richest 10% of households. This percentage encompasses households whose net wealth totalled at least €555,400 in 2017. In 2017, this group possessed around 55% of total net wealth in Germany.

Further evidence of high wealth inequality in Germany is provided by the Gini coefficient, a measure of wealth distribution. The Gini coefficient usually assumes values between 0% and 100%: a value of 0% expresses perfect equality, whilst a value of 100% expresses maximum inequality. In 2017, the coefficient for household net wealth in Germany stood at 74% (2014: 76%). As a result, the distribution of net wealth in Germany was more uneven than the level calculated by the experts for the euro area as a whole for 2014 (68.5%). More recent figures also show that net wealth is distributed more unevenly in Germany than in Italy (61.6% in 2016), whilst inequality is roughly as high in Austria (73% in 2017) and far more pronounced in the United States (86% in 2016). Researchers were unable to clearly ascertain whether inequality in Germany has decreased or increased overall. According to the report, no clear trend can be discerned from the figures.

Households in eastern Germany considerably less well off than those in western Germany

The Bundesbank’s economists also examined whether characteristics such as the region in which a household lives as well as the age and marital and family status of the reference person can give any indication as to whether a household is wealthy or not. In the process, they discovered that net wealth in eastern Germany was far lower than in western Germany. As the researchers see it, this is partly due to the fact that households in eastern Germany own less real estate than those in western Germany. The greater the number of homeowners, the greater the number of individuals who can benefit from rising real estate prices. The age of the reference person in the household is also key. According to the study, households in which this person is between 16 and 24 years old have the lowest net wealth. A continuous increase in wealth is then observed until the over-65s group is reached. From this age onwards, many individuals start “dissaving”, e.g. by transferring a portion of their wealth to their children. Respondents’ marital and family status also plays a role. For instance, single-parent households, in particular, are significantly less well off than couple households. In 2017, the net wealth of half of all single-parent households was less than €3,900.

Indebted households benefiting from low interest rates

Researchers also focused on households’ investment behaviour and debt. Looking at the 2017 study’s findings together with those from 2014 and 2010, it was revealed that households remained hesitant to invest in securities. In addition, they held the bulk of their financial assets in liquid types of investment that are perceived to be low-risk, despite the fact that these currently yield only low returns. In addition, initial signs suggesting that fewer households are investing in longer-term assets such as private voluntary pension plans or whole life insurance policies emerged. 

The study indicates that indebted households are taking advantage of low lending rates. According to the PHF study, the share of indebted households barely changed between 2010 and 2017. “As before, around 45% of households hold some form of outstanding debt,” the report states.

In the spotlight: the PHF study

The Bundesbank’s survey paints a detailed picture of the wealth and debt of households in Germany. At its core, the study examines households’ financial structure, income and spending habits. The questions posed by researchers include the following: How much money is available to households? How do they invest this money? What do they spend on rent, food and clothing? How much loan debt do they have? The survey has taken place roughly every three years since 2010, with almost 5,000 households participating in 2017. Around two-thirds of these households were taking part for the second or third time. The study’s findings are published and made available to the general public.

The main reason why the study is of interest to researchers is because it provides a wealth of data that can be harnessed for research purposes. The research projects are broad in scope, covering, for example, studies on the relationship between real estate ownership and wealth accumulation or on the way in which monetary policy influences wealth distribution. For instance, analyses on the basis of a special survey conducted as part of the latest PHF study show that, in 2016, households adjusted their savings behaviour in response to lower interest rates. Experts also use the findings in the world of policy consulting, both within and outside the Bundesbank.