Study on financial reserves: economic freedom

You have to be able to afford illness. The top 10 percent can bridge a twelve-year gap. The lowest have no reserves.

In general, assets are much higher in the West than in the East, mainly due to real estate ownership Photo: dpa

Good for those who have a substantial financial cushion. This enables them to compensate for loss of income, for example, due to unemployment or illness, for a longer period of time. Poorer people, on the other hand, have to drastically reduce their spending either immediately or after a few weeks. This obvious effect of the extremely unequal distribution of wealth in Germany prompted the Economic and Social Research Institute (WSI) of the Hans Bockler Foundation, which is part of the German Trade Union Federation (DGB), to investigate the extent of financial security reserves in the various segments of the population.

The researchers calculated how long a household’s assets would last if it maintained its spending level despite a complete loss of all income. In the bottom two deciles, i.e. the poorest 20 percent of the population, there is no financial buffer at all. In the third decile, it amounts to three months, and in the fifth decile, the median value of 23 months is reached. After that, the uphill climb gets steeper and steeper. The top 10 percent could maintain their standard of living for an average of 12 years and nine months, the top 5 percent even for 21 years.

However, there are significant differences between the various household types. Singles and single parents are significantly less well off than couples with or without children. And in general, assets are much higher in the west than in the east, mainly due to real estate ownership.

For WSI Director Anke Hassel, who presented the study in Berlin on Tuesday, the results show the "enormous social dimensions of the already unjust distribution of wealth". Wealth means freedom and opens up "choices in shaping one’s life" that are denied to large parts of the population.

Promoting real estate for old age?

As a consequence, the WSI calls for new forms of wealth creation for the "lower middle class," i.e., those 30 percent who are in the third to fifth decile of the income and wealth pyramid. The focus here is on targeted support for the acquisition of residential property through low-interest loans, subsidies and tax breaks.

According to Hassel, this is also in line with "the desire of many families to own their own house or apartment. Real estate ownership also offers a high degree of security, both for old-age provision and for lifestyle, which is increasingly threatened by skyrocketing rents, especially in conurbations. For this reason, a corresponding subsidy policy is also a good instrument for combating the widespread fears of social decline, especially among the lower middle class.

Hassel did not accept the objection that this would further fuel the speculative bubble already emerging on the German real estate market. After all, the home ownership rate is still "extremely low" compared with other European countries. However, the WSI director conceded that people considered poor or at risk of poverty in the bottom two deciles would not be reached by such programs because they did not have the necessary resources to buy property. Therefore, social housing construction and rent control in the existing stock must continue to have high priority, as must the "poverty-proof design of the social security systems.