The Myth of the Special German Saver

The plight of the German saver is now a hardy perennial of financial news stories. As the ECB gets ready for a QE programme that could further reduce interest rates on a range of financial assets, the drumbeat of stories on the topic has accelerated. German publications are also taking an increasingly aggressive tone in interviews with Mario Draghi, with Handelsblatt accusing him of “consciously putting German savings at risk to save the euro” and Die Zeit pleading with him that “the most pain is caused by the low interest rates.”

Underlying this steady barrage of media commentary and attacks on the ECB is an assumption that German savers are somehow particularly special in keeping a large amount of their assets in deposit accounts that now yield minimal interest. For example, Handelsblatt tells Draghi that the German people

did not invest money, like Goldman Sachs, in shares, options and highly controversial bonds, but focused with your majority — rather conservatively — on savings books, German government bonds and life insurance policies.

Der Spiegel informs us

Because Germans tend to be risk-averse, they invest most of their money in savings deposits, life insurance and fixed-income products.

Bloomberg gets an expert to describe the issue:

“It’s not going to be an easy year for savers,” Michael Seufert, an analyst at Norddeutsche Landesbank, said by phone from Hanover last week. “Germans are so conservative already that it’s hard to imagine they can get any more so.”

And the Wall Street Journal explains that Germany is special because

many equate stock investment with speculation

However, like many popular stories, it turns out that the special conservative German saver is a myth.

For instance, everyone knows that Germans have their savings particularly concentrated in bank deposits, right? Well, take a look at the graph below from a presentation by the impeccably conservative German firm Allianz. It shows bank deposits as a percentage of total financial assets in 2013.

So how special is Germany? Not so much. Deposits were 40 percent of German financial assets in 2013, well behind the figures for Greece and Spain and only marginally ahead of the figures for Portugal and Ireland.

Of course, these kinds of aggregated figures could be hiding other differences which show that Germans are actually far more risk-averse in their financial decisions than people in other countries. A useful source for a more detailed comparison is the information in the Eurosystem Household Finance and Consumption Survey (HFCS). This is a cross-country survey that has collected information on the asset positions of households across the euro area. The first report from this survey provides a large amount of comparable information on asset allocations, mainly from data collected in 2010.

Let’s start with how people allocate their financial assets. See below for the euro area averages. We see that, on average, bank deposits account for 43 percent of the financial assets of Euro area households while “speculative” investments like mutual funds and shares account for a combined 16.6 percent of these assets.

What are the figures for Germany? See below. Bank deposits account for 44 percent of the financial assets of German households while mutual funds and shares account for a combined 16.9 percent of these assets. Given that these are survey estimates that are subject to sampling error, these figures are consistent with the German allocation of assets to deposits and speculative assets being effectively identical to the European average.

Furthermore, the HFCS figures show that, contrary to the popular image, the German fraction of assets held in “speculative” mutual funds and shares is higher than in Greece, Spain, Italy, Portugal, Austria and the Netherlands.

It is possible that these averages just reflect large asset holdings of a small number of wealthy Germans but the data in the HFCS report suggest there is also nothing remarkable about the distribution of financial asset holdings in Germany. For example, see below for the euro area figures on the participation rates of households in various asset classes. This shows that 11 percent of euro area households own mutual funds and 10 percent own shares.

For Germany, the corresponding figures are below: About 17 percent of Germans own mutual funds and 10.6 percent own shares. Thus, the perfectly average allocation of mutual fund and shareholding wealth in Germany is actually spread across a wider number of households than in most euro area countries.

Finally, a comparison of the asset holdings of the median participant in the various asset classes shows little difference between Germany and the euro area as a whole. Here’s the euro area.

And here are the corresponding figure for Germany (and Belgium …)

The median German household has larger financial assets than the median euro area household, so it’s not too surprising that the median German depositor has more money in the bank than the median euro area depositor but it’s a small difference given the gap in median financial assets (Note: Because these are medians across different groups, the figures in the rows won’t add up). The median German holder of mutual funds has the same amount as the median euro area household investor in these funds while the median German share owner has slightly higher holdings than their euro area comparators.

What does all this mean? Despite the flood of stories suggesting Germans are a very special breed of people who invest their money in a particularly conservative fashion, it turns out the Germans are basically regular people who invest their money in pretty much the same fashion as the average European.

I don’t expect these dastardly facts to play much role in German and European debate about interest rates in the coming months but I figured they were worth sharing.