The Bundesbank’s experts have created a new provisional dataset that can be used to examine the wealth and debt developments of households in Germany at quarterly intervals. According to this dataset, wealth inequality decreased slightly between 2009 and 2021, but remains high overall. “While the top 10% of the net wealth distribution held more than 50% of households’ total net wealth in Germany over the observation period, the bottom half of the wealth distribution accounted for an extremely small share, averaging 0.6%,” the current Monthly Report states. However, it continues, the share of total net wealth held by the less wealthy 50% of households rose from 0.2% in 2009 to more than 1.2% in 2021. The reason for the slight decline in wealth inequality was that households’ net wealth had grown particularly strongly in the bottom half of the distribution of wealth, albeit from a low level. Furthermore, they had reduced their debt considerably. At the same time, households in the upper mid-range of the distribution benefited noticeably from the rising value of their real estate assets.

New dataset links existing statistics

For their analysis, the experts use a new provisional dataset which links the Bundesbank’s Panel on Household Finances (PHF) with the macroeconomic balance sheets. This produces what is known as the distributional wealth account (DWA), which enables distributional information to be combined with the macroeconomic statistics in a consistent manner and made available on a quarterly basis. This ultimately allows for timely and extensive analyses to be carried out at the level of individual households. “Statements can then be made regarding the development of the wealth and debt situation along the wealth distribution, for example,” according to the report.

Wealthier households benefit from high returns

The analysis in the Monthly Report also shows that the structure of households' wealth in Germany is very varied. The assets of households in the bottom half of the wealth distribution were largely low-risk assets such as deposits. These liquid forms of investment served as a buffer for households, such as in the event of unexpected fluctuations in income, meaning they do not have to reduce their consumption as severely in such cases. By contrast, the assets of households in the top half of the distribution are, per the report, made up to a much greater extent of securities as well as, in particular, real estate and business assets.

This is also reflected in the rate of return on total assets. “As real estate assets, in particular, generated a high return alongside shares, the average real return on assets from 2009 to the beginning of 2022 was significantly higher in the top half of the wealth distribution than in the bottom half,” the economists write.

The yield-lowering effect of the current high levels of inflation was felt particularly strongly at the bottom end of the wealth distribution. “Compared with the rest of the households,” the report notes, “the total assets of these households consist mainly of low-interest deposits. In this respect, high inflation rates tend to lead to negative real returns on assets for them.” At the same time, the Bundesbank’s experts point out that, owing to the low interest rates, the interest burden on liabilities such as loans for house purchase has also fallen, which is likely to have provided relief for indebted households. Nevertheless, around 20% of all households in Germany, which are located almost exclusively in the bottom half of the distribution of wealth, currently have no debt (at all), whilst at the same time and for the most part only holding low-interest investments. Accordingly, the report continues, these households could not have benefited from lower real lending rates. This is why the current high level of inflation is mainly weighing on these households’ low level of wealth in the form of significantly negative real returns on assets.

Monetary policy relevance

Given the relationship between monetary policy and wealth inequality, the experts conclude in the report that this dataset is likely to become more relevant to monetary policy in future. For example, the effectiveness of monetary and economic policy measures depends, amongst other things, on the distribution and structure of wealth. Balance sheet constraints could also affect the impact of monetary policy measures. The Bundesbank’s experts explain that when assessing the impact of such measures, it would probably generally be helpful to take note of the financial differences between households, adding that it is precisely against this backdrop that the future provision of the DWA would appear of particular interest to a central bank.