Study shows gap between middle class and rich has shrunk slightly

Even if the financial situation of the middle class in particular has recently improved, the Bundesbank still registers a large wealth gap between the richest and the rest of the population. In the
Study
It says: “While the top ten percent of the net wealth distribution held more than 50 percent of the total net wealth of households in Germany over the period under review, the bottom half of the wealth distribution accounted for an extremely small proportion at an average of 0.6 percent.”

The quote continues to show large wealth disparities. But the Bundesbank also has positive findings: the wealth share of the bottom 50 percent of the population has increased significantly in recent years. In the period between 2009 and 2021, the value increased sixfold from 0.2 to 1.2 percent of the so-called net wealth. To determine this, the experts deduct all liabilities such as loans, debts and the like from the existing assets.

For its analysis, the Bundesbank used data from a household survey, which it linked to so-called macroeconomic balance sheets.

Wealth also benefited from low lending rates

The reason given by the Bundesbank for the catching-up process among the lower sections of the population is “that the net wealth of households in the lower half of the wealth distribution has grown particularly strongly” – albeit from a low level. According to the Bundesbank, this development is also due to the fact that debt has fallen significantly in recent years. And those who went into debt could take advantage of the mostly low interest rates.

Another important result can be found in the study: the wealthier part of the population has recently benefited from the significant increase in the value of their real estate portfolio.

savers lost money

The money experts also determined that the less wealthy households primarily rely on lower-risk investments. The study cites “deposits” – i.e. money parked in savings accounts as well as overnight and fixed-term deposits.

These funds, available at short notice, served as a kind of buffer for households to be able to compensate for unforeseeable financial gaps. The funds can be called up quickly in an emergency, but also only offer low returns.

The wealthy benefit from high returns

The picture is quite different for the wealthier. “Household assets in the upper half of the distribution, on the other hand, include securities to a much larger extent, as well as real estate and business assets in particular,” says the report.

Anyone who has invested in real estate in the past has benefited from the price development of the past few years. As a result of the zero interest rate policy of the European Central Bank (ECB), no income could be achieved with interest investments. Instead, many investors opted for real estate – the boom in demand led to massively increased prices, especially in the coveted metropolitan areas.

In addition, the wealthier part of the population also relies on securities and shares. Experts have been repeating for years that no other asset class has generated such high returns in a long-term comparison as equities. This applies despite all the course setbacks and crashes that have occurred in the meantime.

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In 2021, investors achieved a price increase of almost 16 percent with the leading German index Dax. However, the development in the current year 2022 shows that there is no guarantee for price increases. From January to the end of June, investors recorded severe losses. This shows that stock markets fluctuate, but offer opportunities.

Many suffer particularly from high inflation

Inflation in Germany is currently 7.6 percent. Interest-bearing investments cannot compensate for this loss in value – even in the case of a multi-year investment. According to the Bundesbank study, this led to “negative real returns on assets” – the bottom line is that these households lost assets.

The study also points out that the favorable interest rate environment of the past few years has “resulted in relief for indebted households”. However, according to the Bundesbank, around 20 percent of all households currently have no debt. Because these households also kept a large part of their disposable funds in low-interest investments, these sections of the population were unable to benefit from the positive interest effects of the past few years.

This is how the wealth gap can be closed

The data from the Bundesbank study show that only those who take lucrative asset classes such as real estate and shares into account when distributing their assets can also achieve asset growth even when interest rates are low.

acquire real estate property

Real estate prices have risen massively in recent years. Especially in metropolitan areas, the costs exceed the financial scope of many consumers. In addition, within a few months, mortgage interest rates have risen from well under one percent to around three percent. In addition to the high prices, this leads to a massive increase in the cost of real estate financing.

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But investors do not have to buy an entire property to acquire ownership of the land. You can also invest your money in real estate funds and thus benefit from the increase in value. If you are interested in this variant, you should open a savings plan and invest a fixed amount every month. In most cases, such systems have paid off over the decades.

build equity wealth

Many Germans make a big deal about shares and Co – the risk of price losses deters them. However, these are only the downside of above-average possible returns that equities also have.

If you want to reduce the risk of price losses, you should not invest your money in individual stocks. Instead, there are so-called ETFs (Exchange Traded Funds).

ETFs score with two advantages:

• They only charge a small fee.

• When choosing widely diversified investments, the invested capital is spread across many hundreds of different companies. ETFs that invest in the global stock market are particularly suitable for this. An example of this is the
  iShares Core

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If you don’t have a large wealth cushion, you should use a savings plan with ETFs. Direct banks allow this from investment amounts of ten euros per month.

Another plus: Some direct banks make it possible to create a free custody account.

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