Surprising relief
Against the backdrop of resilient economies and booming markets despite monetary tightening, global financial assets of private households recorded strong growth in 2023: With an increase of +7.6%, the losses of the previous year (-3.5%) were more than made up for. Overall, total financial assets amounted to EUR239trn at the end of 2023. But growth in the three major asset classes was quite uneven. Securities (+11.0%) and insurance/pensions (+6.2%) benefited from the stock market boom and higher rates, growing significantly faster than the average of the last ten years. In contrast, growth in bank deposits fell to +4.6% after the pandemic-related boom years, recording one of the lowest increases in the last 20 years.
No place for bank deposits
In 2023, the normalization of fresh savings continued after the pandemic-related boom years of forced savings: They fell by -19.3% to EUR3.0trn. The movement in stocks is echoed by the shifts in financial asset flows as this decline was almost exclusively attributable to bank deposits. On balance, banks worldwide only received EUR19bn, a slump of -97.7%. The main culprit: US households who liquidated deposits worth EUR650bn. The other two asset classes, on the other hand, remained popular with savers. Inflows into securities even increased once again – by +10.0% – from their record level of the previous year. However, there was a notable change of favorites within this asset class: While shares were sold on balance in many markets, savers made strong gains in bonds, thanks to the turnaround in interest rates. This led to an +84.3% increase in securities purchases in Western Europe, for example. European savers have never been more fond of capital market products. Finally, insurance/pensions proved to be relatively robust, with the decline in fresh savings worldwide amounting to just -4.9%.
The Atlantic divide
Savings behavior is a decisive factor for asset growth. There are basically two sources of growth in financial assets: savings efforts and price increases (increase in value). Over the last 20 years, increases in the value of portfolios in the US – with its strong savings bias towards capital markets – have contributed an average of 62.4% to annual growth; in Western Europe, this figure is 34.2% (in Germany, growth over the long term is driven almost exclusively by savings efforts). This significant difference certainly contributes to the Atlantic divide in long-term growth in financial assets: While financial assets in Western Europe have doubled in the last two decades (+104%), the increase in the US is a whopping +178%, also bolstered by more favorable market developments.
Golden boys and girls
Market developments are also the main reason for the huge differences in financial assets between the generations. The baby boomers are likely to be the richest generation that has ever lived, at least in the advanced economies. Assuming the same stylized savings behavior for the four generations of Baby Boomers, Gen X, Millennials and Gen Z and extrapolating market trends, none of the following generations can keep up with the Baby Boomers: In Germany, for example, they achieved total savings of just under 614% of disposable income with an average nominal return of 6.1% per year. The big losers are the Millennials – shortly after they began to accumulate wealth, crisis followed crisis, resulting in an annual return of just 3.1%. Members of Gen Z, however, have a good chance to outperform all their predecessors – if they align their savings behavior to the new realities (and are spared by mega crises).
Broad-based recovery
In contrast to 2022, in which financial assets shrank in many markets and regions – and also worldwide – the recovery in 2023 was broad-based. In fact, only two countries – New Zealand and Thailand – recorded negative growth rates last year. Moreover, growth was relatively uniform across all regions, not least in Asia and North America, which both grew by over +8% – with the US (+8.6%) growing even more strongly than China (+8.2%). Only Western Europe (+5.0%), where the UK‘s weak performance (+1.5%) dampened growth, and Eastern Europe (+18.0%), where hyperinflation in Türkiye led to high (nominal) growth rates, were somewhat out of line.
