Saving Habits

Germans too chicken to abandon their piggy banks

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Cash is king for many German savers. Source: Reuters

Germans still love their piggy bank, no matter how meager the returns. Real interest rates on savings accounts dipped into negative territory in 2017, but German savers still socked their money away in the low-yielding deposits.

German household savings increased by 5.2 percent in the year, according to a study by DZ Bank, to a record €6.1 trillion ($7.3 trillion) and are expected to go up a further 4 percent this year. The savings rate of 9.8 percent kept Germany among the top savers globally. But one-fourth of that amount was kept in cash or demand deposits. Even money deposited in low-yielding savings accounts returned a negative 0.8 percent after subtracting the 1.7-percent inflation rate from the nominal interest paid.

This means that German savers booked a loss of €38 billion on these accounts for the year, DZ Bank calculates. The high savings rate even in the face of negative returns on very conservative assets reflects the stubborn resistance to risk in a nation traumatized by the hyperinflation, stock market crash and Depression experienced in the Weimar Republic between the two world wars. It was a financial tragedy that paved the way for the Nazi regime and left what appears to be an indelible mark on the national psyche.

Nothing shows the difference in savings habits between the two countries more than investment in the stock market.

The German passion for saving contrasts with what is almost an aversion to saving in the United States. The savings rate there has declined steadily in recent years to reach 4.8 percent last year. The decline continued in 2017 and dipped to 2.9 percent in November, according to the latest statistics from the US Bureau of Economic Analysis. The OECD estimates that the US savings rate will come in at 3.7 percent for all of 2017 and remain at about that level in 2018 and 2019. The much higher German saving rate will also remain steady over the next couple of years, the OECD economists estimate.

Nothing shows the difference in savings habits between the two countries more than investment in the stock market. According to the Deutsches Aktieninstitut, which promotes share ownership, only 14 percent of Germans over the age of 14 hold shares directly or via equity mutual funds. DZ Bank found that shares held directly by individuals represented only 7.3 percent of private financial assets. Even including equity mutual funds, the proportion is still less than 14 percent.

By contrast, a recent survey by Gallup found that 54 percent of US adults over the period 2009 to 2017 invested in the stock market, either directly, through a mutual fund, or a self-directed retirement account. This marked a substantial decline from 62 percent in 2001-08, prior to the financial crisis. (For those with more than $100,000 in annual income, however, that percentage rises to 89 percent for the most recent period, up from 88 percent in the earlier period.)

Those Germans who did take a chance on the stock market in 2017 did well. The DAX index of leading stocks rose 13 percent in year to 12,917. This produced a gain, on paper at least, of some €93 billion for private stock market investors.

There has been one notable departure in German saving habits, however. Homeownership, for various historical reasons, has been relatively low in Germany. But the combination of low interest rates and low yields in other assets has prompted more Germans to invest in apartments, houses and plots of land where they will live themselves.

Most economists don’t expect the European Central Bank to raise rates on the euro in 2018, while forecasts for inflation in Germany are largely in a range of 1.4 to 1.8 percent. Many German savers, in short, will once again see negative interest rates on their savings and will book a loss. For many of them, however, it seems a sure loss of some 1 percent is preferable to a potential loss of much more in an unpredictable and risky stock market, even at the cost of a higher potential gain.

Susanne Schier is a reporter for Handelsblatt in Frankfurt. Darrell Delamaide is a writer and editor for Handelsblatt Global based in Washington, DC. To contact the authors: schier@handelsblattgroup.com and d.delamaide@extern.handelsblattgroup.com.

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