Although many Germans are now venturing into stocks and mutual funds, the need to catch up with capital market investments remains high compared to savings accounts or term deposits.
Record sums are once again flowing into savings investments this year – after all, interest rates have risen significantly over the past 18 months. “Especially for long-term investments, however, it is important to rely on the strength of the capital market to enable real capital growth – even if overnight money is currently all the more attractive,” points out Matthias Schulz, Managing Director of JP Morgan Asset Management.
There are many reasons why many Germans really do not trust stocks, funds, ETFs, etc. As shown by the “Financial Barometer 2023”, a representative survey of 2,000 women and men in Germany conducted by JP Morgan Asset Management, most of them are based on a lack of financial knowledge.
This is consistent with the fact that most Germans rate their financial knowledge as “satisfactory” at best. Germans consider schools, but also parents, to have an obligation to improve financial education in Germany. But the principle of “learning by doing” is also seen as promising.
“It’s important to develop an understanding of finances early on. The school and parents play a central role in this. But it also makes sense to gain first practical experience at a young age,” explains Matthias Schulz. “Young people can have a positive experience, even with small amounts of euros, that, for example, an investment in a stock fund can yield more in the long term than money in a savings account. Those who find out early will be more open to engaging in the capital market later,” adds the expert.
Lack of knowledge leads to fear
A quarter of Germans see a lack of understanding of the topic as the main reason for not investing. This is followed by the fear of fluctuations and the associated possible losses, amounting to 24 percent, but also the lack of advice. However, these arguments against investing can be easily refuted from the point of view of Matthias Schulz.
“Lack of understanding and fear of fluctuations are aspects that involve knowledge and experience. Unfortunately, the complexity of investing is often overestimated. For example, anyone who gains initial experience with a savings plan and finds that the fluctuations are not nearly as significant over the long term will quickly lose their fear of it,” says Schulz.
The lack of advice can also be dealt with relatively easily: “Today there are many different models of financial advice and many financial advisers today also offer advice online. This means that you can get financial advice without spending too much time, which is especially useful when deciding on a larger investment,” explains Schulz.
And the expert would like to encourage the 17 percent who say they can’t afford investments because they have too little money for them, that savings plans are possible even with small amounts and that their assets can grow remarkably over time thanks to the compound interest effect.
Confidence in the capital market can be improved
Overall, only 41 percent of Germans rate their financial knowledge as very good or good. A big difference between women and men is revealed: only one in three women consider their financial knowledge to be good or very good, while for men it is at least one in two.
The differences between the different age groups are interesting: Compared to all age groups, the younger generation considers itself the most knowledgeable about finances: 47 percent of people aged 18 to 24 see their financial knowledge as very good or good – among those older than 35 to 24 Only 41 percent of 44-year-olds who are likely to be very heavily involved in building wealth or buying real estate at this stage of life.
Increasing financial education: schools, parents and “practice instead of theory”
As the best measure to improve financial education, 44 percent think financial literacy should be taught as a subject in school. A third said parents should teach their children how to handle money. And in third place is personal initiative and practical action: 22 percent are for “practice instead of theory”, i.e. investing small amounts independently.
Information offers are now numerous – whether from banks, savings banks or financial advisors, through books and videos, in classic media or from bloggers and “fin influencers”. However, there are large differences in preferences for which information channels different age groups would like to use to improve their financial education.
While a fifth of people aged 18 to 24 find bloggers and fin-influencers relevant, respondents aged 25 to 55 mostly rely on their own initiative with books or videos. The group aged 55 and over, on the other hand, would like information from banks, savings banks and advisors.
A look at the ownership of financial products shows that the openness of young people to the capital market is not yet where it could be: While on average 42 percent of Germans own a savings account, in the age group 18 to 24 the number is even 49 percent – and therefore the highest proportion of all age groups. In contrast, ownership of investment funds or shares among 18- to 24-year-olds is lower than the average for all Germans.
“On the one hand, Germans see schools and parents as having an obligation to improve financial knowledge, but on the other hand, in no age group is ownership of passbooks as high as among 18-24-year-olds. It is therefore important that financial knowledge is imparted in a balanced way both at school and by parents.
The capital market should be an essential part of this,” emphasizes Matthias Schulz. The expert would therefore like to see a change in thinking among the older generation: “Many grandparents often pay cash gifts to their grandchildren in cash or in a savings account.
One idea would be to put that money into a mutual fund or ETF savings plan. This means that a significantly better return is possible in the long term,” explains Schulz. This also encourages the young generation to engage in the capital market themselves.
Ultimately, from Matthias Schulz’s point of view, there are many ways to improve financial education, and these differ by age group. Above all, however, practical experience should be further strengthened in order to reduce inhibitions and mistakes: “He who tries something himself learns best and finds out for himself what he feels good about,” summarizes Schulz.