The Financial Sector and Private Households

After a decline in the German private saving rate during the 1990s, the average propensity to save increased after the new economy crisis. The main reasons for this increase were as follows: first, the redistribution of income at the expense of the labour share of income and of low-income households; second, an increase in precautionary saving in the early 2000s in the face of weak growth, high unemployment and ‘reform policies’ aimed at the deregulation of the labour market and a reduction of social benefits; and third the absence of wealth effects on consumption. The savings of private households were directed mainly to deposit and saving accounts with banks, and to policies with private insurance and pension funds. The significance of shares and investment funds increased during the new economy boom in the second half of the 1990s, but then returned to the level of the early 1990s. The attractiveness of stock markets and the rise of a ‘stock market culture’ in Germany were, therefore, very short-lived. The relationship of the total financial assets held by private households to nominal GDP has seen a tendency to increase since the early 1990s, as has the relationship of real estate wealth to GDP. However, financial and real estate wealth have been extremely unequally distributed and inequality increased in the early 2000s. Financial liabilities tended to increase slightly in relation to disposable income in the course of the 1990s, but then declined somewhat until the Great Recession, and remained low by international comparison.