The Germans are bad savers

Investment The Germans know only black or white

Bizarrely, these misperceptions are just as observed when the majority of citizens, they usually earn little or medium, invest their money in everyday life. They are quite content with the low returns on often overpriced banking products and life insurance, although they could invest at least a portion of their savings much more profitably. But the risk of stocks and real estate overestimate them completely. For example, three-quarters of the German savings accounts, one in two have life insurance – but less than every tenth share.

The Germans, they know only black or white: At Graumarkt they act foolhardy and greedy, scared at the bank and humble. A reasonable middle ground leads somewhere else.

Nobel laureate Edward Prescott shows that over a century, US equities yielded on average seven percent annualized returns. By contrast, short-term interest-rate securities dropped just one percent – and were not much safer. The Bonn economist Moritz Schularick shows in 16 countries over 150 years between equities, real estate, and interest rates a similar yield gap – and also disenchanted the myth that interest rates are particularly safe.

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The consequences of the Graumarktskandale are obvious. In the four largest cases before P & R alone, the damage is estimated at more than five billion euros. The consequences of the daily fearful investment are less discussed, but they are even more serious. The European Central Bank (ECB) puts Germans’ median assets at just € 60,000, just over half the euro-zone average. This is shocking given the German economic power. And it also results from the investment behavior: The proportion of German citizens with real estate is only half the size of Spaniards and Italians. And they invest only half as much of their assets in stocks as the French.

On the other hand, if one looks at the minority of German homeowners, they have as much property as homeowners in other countries. And the percentage of Germans with more than 4,000 euros in net monthly earnings is twice as high as in the total population.

This is how the nation splits itself: nowhere in the monetary union do rich and poor diverge as widely as in the Federal Republic. A few rich households own as much as the entire poorer half of the population. 45 German families have as many as 40 million citizens. “The economic growth of the last decades,” says Stefan Bach from the German Institute for Economic Research, “essentially came in the richest ten percent”.

Could financial supervision intervene?

Because the Germans also shy away from equities and real estate in terms of old-age provision, the partial privatization of old-age provision since the turn of the millennium is likely to cause many a rude awakening. The ECB’s zero interest rate policy bluntly exposes the bankruptcy of German investment habits.

So what to do? The billion-dollar damages on the gray market as well as the bankruptcy in everyday life call for political support for the citizens. Now, the gray market has been controlled more heavily for several years now. Brokers must take an exam and brochures must be prepared, which will then be reviewed by Bafin Financial Supervisory Authority. If that is enough, the younger cases allow for doubt. If a provider such as P & R, according to research by a consumer advocate occupies lower rents but continues to pay high returns and therefore may survive only by fresh customer money: Then the question arises, whether the financial supervision could not intervene. And whether investment products should only be allowed if they have been tested in advance. That only every hundredth inspector takes care of the investor protection, let’s look deeper.

The Enlightenment, however, would have to start much earlier: at school, in order to convey the connections between risk and return in a comprehensive manner. This money-making should later be flanked by a free annual appointment with the consumer centers, which advises on the investment – funded by a levy on the financial sector.

Solve bad habits

Better education and financial advice could also persuade Germans not to let their savings completely sank in bank deposits and life insurance. But in order to really create a propensity for stocks and real estate, the state would have to do more. In asset accumulation and retirement targeted to promote these investments and not all with the watering can. Relieve the burden of taxes and charges on broad layers so that they can invest significant sums of money at all. And think about state-run or by the social partners launched privately managed funds that invest on the model of the Norwegian State Fund savings widely spread.

Of course, money remains the property of every citizen. Therefore, these proposals also show that the state can only ever play a supporting role. Ultimately, the citizen makes his decision. So the mass of Germans must already be willing to break away from bad habits that have decimated their fortunes for decades. And they would have to take care of their financial affairs as well as, say, the purchase of their car.

Otherwise, they will continue to stutter or rush through the countryside in Gelddingen with only two courses. Much of the savings will continue to languish in low-yield products. And dubious providers on the gray market will continue to cause billions in damages. In other words, most citizens will continue to reap only a meager part of the fruits that are so abundantly produced by the success of Europe’s strongest economic nation.

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