Low ECB interest rates make wealth accumulation difficult for poorer households

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Difficult to reach for poorer households: their own property (symbol image)

Photo: Hauke-Christian Dittrich / dpa

Anyone who does not own a property and only invests money at low risk will find it difficult to build up wealth due to the low interest rates in the euro area for years.

This is the conclusion of the German Business Institute (IW), which is close to the employer, in a recent study.

Households with low incomes and low wealth are particularly affected.

"While many households can now record lower financing costs and higher real estate price increases compared to the pre-crisis period, these effects are less advantageous for households that do not own real estate or who are currently entering the real estate market, despite favorable financing conditions," writes the team of authors. "The accumulation of wealth and provision for old age are also made more difficult for those households that are dependent on low-risk forms of investment due to their low incomes and low wealth." Because savings accounts and many life insurances hardly generate any returns.

Since only slightly higher interest rates can be expected in the future, it is important to support the wealth accumulation of these households, the authors warn: An adjustment of the employee savings allowance and the saver lump sum is overdue. In addition, a "share culture" must be promoted in order to secure retirement provision, for example.

Overall, however, the loose monetary policy of the European Central Bank has not significantly changed the distribution of wealth in Germany, write the authors of the study. There are winners and losers in all asset classes, the IW found in its analysis commissioned by the Family Business Foundation. Not only the economic situation (poorer or richer), but also living conditions (property or rent), place of residence (city or country) and age determine whether or not people have benefited from the sustained low interest rates and rising real estate prices.

"Households that bought and financed property in the pre-crisis period and were able to lower their borrowing costs when interest rates fell and at the same time benefited from rising property prices benefited from the expansionary monetary policy," the study says.

Accordingly, real estate prices rose particularly sharply in large cities.

Financial crisis, euro debt crisis, corona crisis - since 2008 the ECB has been fighting various crises with cheap money.

The key interest rate in the euro area has been at a record low of zero percent since March 2016, and the central bank is bringing billions into the currency system through huge purchase programs for government and corporate bonds.

tse / dpa