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Real net assets of private households in Germany shrank between 2003 and 2013

Press Release of August 19, 2015

DIW researchers investigated the development of assets while taking inflation into account – Germans’ investment behavior is one of the essential factors contributing to the decline in real assets – results contradict the national accounts

The net assets of private households in Germany experienced extremely weak development between 2003 and 2013: They increased by an average of only 500 EUR, or 0.4 percent. Accounting for inflation, households in fact lost nearly 15 percent of their net assets—which corresponds to an average of more than 20,000 EUR. The real value—that is, the purchasing power of the assets—therefore declined significantly. This is the conclusion of a study conducted by the German Institute for Economic Research (DIW Berlin) on behalf of the Hans Böckler Foundation, using data from the Income and Expenditure Survey (EVS). According to the German Socio-Economic Panel (SOEP), the real net assets of households in Germany also declined significantly, by more than eleven percent between 2002 and 2012—even despite a consistently high savings rate, for the most part, of more than 9 percent per year. The study’s authors, Markus Grabka and Christian Westermeier, see the cause primarily in the weak performance of owner-occupied real estate. However, Germans’ investment behavior also played a role: "Many people prefer to invest their assets in low-risk and therefore low-return investments such as savings accounts, checking accounts, building loan contracts, and Riester pensions, which often don’t even make up for the inflation," says Grabka. In light of the results, the economic researchers argue in favor of a more targeted promotion of individual asset growth—which will also serve to reduce the high level of wealth inequality in Germany.

German Institute for Economic Research (DIW Berlin)

The German Institute for Economic Research (DIW Berlin) is one of the leading economic research institutions in Germany. Its core mandates are applied economic research and economic policy advice as well as provision of research infrastructure. As an independent non-profit institution, DIW Berlin is committed to serving the common good. The institute was founded in 1925 as Institut für Konjunkturforschung (Institute for economic cycle research). Since 1982, the Research Infrastructure SOEP (German Socio-Economic Panel Study), a long-term study, is affiliated to DIW Berlin. The institute has been headquartered in Berlin since its founding. As a member of the Leibniz Society, DIW Berlin is predominantly publicly funded.

Tenants have the lowest assets

Because the SOEP is a repeated survey in which the same people provide information about their assets at regular intervals, DIW researchers Grabka and Westermeier were also able to investigate wealth mobility: Here, they found that during the periods between 2002 and 2007 and between 2007 and 2012, respectively, around 40 percent of respondents lost real assets. For a little over one-eighth of the respondents, the assets remained virtually unchanged, while nearly 45 percent were able to tangibly increase their assets—the strongest increases occurred among 30 to 39 year olds who on average gained between 8,000 to 9,000 EUR in both times periods.

Apart from saving regularly, paying off debts is important for asset growth. A particularly strong increase in assets occurred in households that received gifts or inheritances. Differences in residential status as well as changes in marital status can also affect the asset amount: Marriage has a positive effect, whereas if there is a separation or a divorce, costs arise that are usually covered with existing assets. Long-term tenants had, from 2002 to 2007 as well as from 2007 to 2012, the lowest net assets: less than 3,000 EUR on average. The capital gains were also low among renters. "This is problematic in that even short-term bottlenecks in current income can erode the assets," says Westermeier. "Moreover, such low assets do not offer effective protection against poverty in old age."

Differing methods of valuating real estate lead to different results

DIW Berlin’s results regarding the development of German households’ real net assets contradict those of the national accounts, whose results show a tangible increase of 20 percent for the years between 2003 and 2013. Theoretically, it would be possible that the wealthiest people—that is, the multimillionaires and billionaires who are de facto not sampled in the EVS and SOEP—are responsible for the increase. However, Grabka and Westermeier analyzed the assets of the wealthiest people in Germany (according to Manager Magazin) and found that for those who were included on the list at two points in time, the net assets remained nearly unchanged between 2007 and 2012.

More probable is that the national accounts come to different conclusions primarily because—apart from other methodological differences in the recording of assets—they calculate the value of buildings differently. According to the national accounts, building values increased in real terms by almost 19 percent between 2003 and 2013. But other sources apart from the EVS and SOEP samples indicate that they have actually decreased: For example, the price index of the Federal Statistical Office reports declining values for existing real estate in the period between 2000 and 2010.

The underrepresentation of the wealthiest people in population surveys and the lack of comparability of different valuation methods is, from the perspective of Grabka and Westermeier, proof that the data infrastructure for asset analysis in Germany fundamentally needs improvement: "Such a societally relevant variable as the development of private asset portfolios should not be riddled with so many uncertainties, which is currently the case in Germany," says Grabka.