German insurance giant Allianz said that over the past four years, 200 billion euros ($223 billion) has been lost in investment income by German households due to their overcautious attitude.

Rather than investing in shares or funds, Germans lost out by keeping their savings in banks, Allianz’s global wealth report, published on Wednesday, revealed.

Germans are known for their diligent saving and avoiding of hefty loans such as mortgages and they have long enjoyed a reputation of one of the most financially prudent people in Europe. The economic crisis of the 1920s when hyperinflation wiped out savings and bankrupted millions is the source of this antipathy to risk.

Despite the fact that bank deposits yielded a mean return of -0.4 percent which was a loss, Germans had placed roughly 40 percent of their financial assets in banks since 2012, the report said.

However, according to Allianz, the rate of return would have been almost one percentage point higher if these savers had gone against their stereotypes and reduced the share of bank deposits to 30 percent and invested the money equally into listed shares and mutual funds. This would have allowed households to reap an addition investment income of 200 billion euros.

“It is evident that times of extreme monetary policy with negative interest rates require adjustments in savings behavior … New savings patterns and asset solutions are necessary — a task the financial industry and politics should tackle hand in hand,” Allianz Chief Economist Michael Heise said in the report.

Over the last four years, German household received a real return on assets of 2.3 percent, Allianz found. This compared to over 4 percent for both Italy and Spain and 3.6 percent for French households.

Banks are forced to typically pass on pressures and low income rates to customers in the form of low return on deposits when central banks adopt ultra-low or negative-interest rate policies.

“Savers face a real dilemma,” Heise said.

Measured by the difference between financial assets and liabilities, after Austria, German households enjoy the second lowest debt levels in the euro zone and this is the flipside of their caution. While German financial assets grew by 4.6 percent, their households’ liabilities grew by less than half of that at 2.2 percent.

Western European countries were taking a very conservative approach to borrowing in general, Allianz said.

“Only very few households seem to succumb to the temptation of ultra-low loan rates and embark on a credit-fueled spending spree,” Heise said.

“The majority of households act in an economically very sensible manner — defying the intentions of central bankers who are trying to pump up demand via aggressive rate cuts. Following the excesses of the financial crisis, however, households view trimming debt as more important,” he added.

Allianz said that “the best years are over” for savers across the world. Compared to the average annual growth of 9 percent from 2011 to 2014, global financial assets climbed by 4.9 percent in 2015.

(Adapted from CNBC)

Categories: Economy & Finance, Uncategorized