Last year has been a good year, at least for financial assets in German households. At an estimated €4.64 trillion ($6.62 trillion) they have reached a new high, according to the report Financial assets in German households rising. At the end of 2009, gross financial assets were 4.4% higher than in the previous year (€4.45 trillion, $6.35 trillion). However, the share of assets invested in retirement provisions moved against the trend from 28.6 to 28.2%.

“In a post-meltdown environment, Germans seem to be hesitant about investing privately into their retirement funds. It will remain a crucial issue in the mid- to long-term to improve financial literacy,” Dr. Renate Finke, senior pensions analyst and author of Financial assets in German households rising, says.

The reversal of the German stock market in March 2009 increased household financial assets by offsetting some of the valuation losses due to the financial crisis. Roughly 60% of the increase was added as new investment capital, the remaining 40% is due to valuation gains as the German stock market index, DAX, went up 24%. As a consequence, the share of equities in portfolios has increased.

Equities in household portfolios are now back to the 1995 level as far as their total value is concerned, but are still far below the equity boom years. This will remain an issue, Finke warns.
“In the past 15 years, investors have not increased the combined share of stocks and investment funds significantly, which they need to do if individual retirement provisions are to cover the declining replacement rate of first pillar pensions.”

Even though capital market products (bonds, equities and investment funds) did improve in 2009, they make up less than approximately 28% of all German household financial assets. Bank deposits constitute the largest share of all German household financial assets (38%, €1.78 trillion or $2.53 trillion), Financial assets in German households rising reports.

However, the increase in equities might help to stop net outflows from the equity market that the German Central Bank has reported since 2001, a trend that has continued in the first two quarters of 2009.*
Germans further contributed to the increase in assets by saving persistently, Finke notes. At 11.2%, the 2009 savings rate remained at the same level as in 2008. “Savings were sandwiched between increased consumption and diminished income. The Abwrackprämie (German version of the US Cash for Clunkers program) lured people into spending money for a new car, yet a significant number of companies reduced working hours. There was not much money left for extra savings,” says Finke.

Safety still mattered to German investors in 2009. “They preferred to park their money in accounts that are accessible at short notice,” Finke explains. Sight deposits have seen an increase of approximately 20% and are now at an estimated €630 billion ($894 billion). Time deposits, on the other hand, experienced the biggest outflow as their interest rate fell from 4.5% to 1%. They dropped by €120 billion ($170 billion).

The Financial assets in German households rising report will be updated in June 2010 as official data for 2009 will then be available. A third paper on household financial assets to be published in August will also include savers’ behavior in Western European countries, the US and Japan.

 * Deutsche Bundesbank, Special Statistics Publication 4, Financial Accounts of Germany, 1991 to 2008; for the quarterly data 2009 see: Monthly Report November 2009.

Published by PROJECT M online in February 2010

(Photo: Dan Monick/Index Stock Imagery)