How Germans Earn Their Fortune - Trends in Household Portfolio Behavior
German household portfolio behavior still differs a lot from that of other countries. The share of assets in banks and savings banks is comparably high, while stocks and investment fonts play a minor role. Nevertheless they can look back on a history of amazing growth in the last years, although they are still not able to approach internationally common household portfolio shares. By international comparison German households have always held a larger share of their portfolio in safe investments with banks and a rather small share in stocks and mutual funds. This continues to be true after the stock market boom of the late 1990s. Also life insurance products continue to be of exceptional importance, as German households invest roughly 30 percent of their gross financial wealth in life insurance – which resemble tax favored guaranteed savings plans.
Yet German households portfolio behavior has changed a lot over the last decades (see figure 1). Mutual funds and stocks together accounted for only 6 percent of gross financial wealth in the early 1980s – this share exceeded 10 percent by 1993 and has doubled another time to roughly 20 percent in 2003 despite the downturn in the stock market.
While the portfolio share of direct investments in the stock market has declined over the last 5 years, rather few investors finally quit the stock market. On the other side – especially savings with banks have continuously lost some of their previous importance. Their portfolio share declined from a high 27 percent in the early 1980s to below 20 percent in 2003.
Analysing the trends in household portfolios at the level of age groups we find the rising importance of securities as well as the declining share of saving accounts to be prominent at almost all ages. We observe a declining importance of life insurance for the oldest cohorts and – somewhat surprisingly – for the youngest cohorts. Figure 2 depicts how the share of life insurance owners differs at a certain age across birth cohorts and how this share has developed over the life cycle of those cohorts. A line of one color always follows a certain birth cohort throughout its life-cycle.
The decline in participation rates among the youngest cohorts compared to their ancestors seems especially surprising: these cohorts face an increased need for private old age provision, as the recent pension reforms affect them the most. Other factors like the decline in the interest rates life insurance contracts guarantee or changes to the tax code may play a role here. To give causal explanations is beyond the scope of the paper though.
For more information please have a look at
Trends in German households' portfolio behavior - assessing the importance of age- and cohort-effects
MEA Discussion Paper: 082-05, Mathias Sommer.