Executive Summary
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, who 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 Turkey led to high (nominal) growth rates, were somewhat out of line.
There is only one China
The long-term development over the last 20 years naturally shows greater differences, with the catch-up effects of the emerging economies taking full effect: China, Latin America and Eastern Europe are achieving double-digit growth rates per year, while Japan is only growing at +2% and Western Europe at just under +4%. However, adjusting for population growth and inflation more than halves global growth, from +6.0% to +2.5%. Inflation is driving a large wedge between nominal and real growth rates particularly in Eastern Europe and Latin America. Only two markets escape this development: Japan and China. Although real growth is lower here too, the discrepancy is not very large. Per capita assets in Japan have actually grown slightly faster in real terms than in Western Europe over the last 20 years. And the gap between China and the rest of the world becomes huge in real terms: the growth advantage over the rest of the world is almost 10pps per year. In fact, the purchasing power of average per capita financial assets in China has increased tenfold in just 20 years.
Three lost years
Inflation has only become really painful in recent years. At the end of 2023, real financial assets worldwide were only at the level of 2020 – the last three years were lost years for savers worldwide. Compared to the pre-coronavirus year 2019, however, there was still an increase of +9.1%. Regional differences are large. While Asia grew in real terms over all the years – thanks to relatively low inflation rates – and real financial assets were 26.3% higher at the end of 2023 than in 2019, the trend in Western Europe was diametrically opposed: real financial assets have shrunk in recent years and are now 4.3% lower than in 2019. European households suffered four lost years. The trend in North America was not quite as bad: although it is still below the 2020 figure, the increase compared to 2019 was 6.0%.
The new reality of a fragmenting world
In one respect, 2023 represented a return to the new reality of a fragmenting world: The growth advantage of the emerging economies over the advanced economies has shrunk significantly again, amounting to just 2pps last year. Until 2017, the year in which the trade disputes between the US and China broke out under President Trump, there was still a growth gap of 10pps or more between these groups of countries. In 2022, this growth gap widened again, triggered by the market turbulence caused by the interest rate turnaround, which mainly affected the US and Western Europe. As expected, however, this return of the gap appears to have been just a blip.
USA at the top
The fact that emerging economies have largely lost their growth lead in six of the last seven years is primarily due to developments in the US. During this period, the financial assets of US households not only grew twice as fast as those in Western Europe, but also faster than the global average and roughly on a par with Chinese financial assets. The consequence of this performance is reflected in the regional distribution of global financial assets: North America's share has barely changed in the last 20 years; almost half of all financial assets worldwide are held by households in North America. This supremacy is also reflected in the per capita financial assets, at least when looking at the averages: in fact, only the Swiss (EUR382,910) are still richer than the US Americans (EUR 314,930). All other countries follow at a fair distance. Adjusted by liabilities, however, the US overtakes Switzerland (EUR260,320 vs EUR255,440).
Moderate growth ahead
The (so far) positive trend on the stock markets and resilient economies should lift financial assets in 2024. Assuming stable savings efforts, we expect global financial assets to grow by +6.5% in 2024. However, the medium-term outlook is overshadowed by uncertainties about the two megatrends of AI and sustainability. The potential of AI is undisputed, but it will probably be years before the AI boom reaches the entire economy and leads to productivity increases across the board. Disillusionment after the initial euphoria is already noticeable. Similarly, the necessity of the green transformation is not disputed. But the difficulties in terms of costs, technology and regulation are being perceived more strongly again. The green boom in the economy and stock markets is still a long time coming – but with the right (political) framework set, it is still possible. This brings the biggest problem into focus: political uncertainty, be it on a national level with the rise of extreme parties or on an international level with several geopolitical crises and increasing fragmentation. Against this background, only modest growth in global financial assets of +4-5% can be expected over the next few years – albeit with high volatility: the economy and markets are likely to oscillate between fear of crisis and euphoria about change.
Debt stability
The rise in interest rates had a clear impact on the liabilities side of private households' balance sheets in 2023: Growth in private debt weakened further to +4.1% worldwide, the lowest growth in nine years. Overall, the global liabilities of private households amounted to EUR56.8trn at the end of 2023. The decline in debt growth was observed in almost all regions in 2023. It was particularly pronounced in Western Europe and North America, where growth more than halved to +1.1% and +2.9%, respectively. As nominal growth in global economic activity remained elevated by inflation, the global debt ratio (liabilities as a percentage of GDP) fell for the third year in a row, dropping by 1.5pp to 65.4%. This was also more than 3pp lower than in 2003.
Debt outgrows financial assets in most emerging economies
Relatively strong growth in assets and relatively weak growth in liabilities led to a significant increase of +8.8% in net financial assets (financial assets less liabilities) in 2023. Overall, global net financial assets amounted to EUR182trn at the end of 2023; this represents an increase of almost EUR15trn compared to the previous year and is also EUR4trn above the previous record value from 2021. The development in the individual regions was almost synchronized: strong growth was achieved everywhere, even in Japan (+6.2%). Comparing the development of gross and net financial assets reveals a clear pattern: In most emerging economies, net financial assets have grown significantly slower than gross financial assets; in China, for example, the gap amounted to 1.5pp per year. This growth gap implies that, on average, debt has grown faster than assets in these countries. In the advanced economies, the opposite is true: debt is growing more slowly and net financial assets are therefore growing faster than gross financial assets.
Setback in real estate
In contrast to financial assets, real estate assets developed weakly in 2023: at +1.8%, the lowest growth in 10 years was recorded. There is no need to speculate on the reasons for this: high construction costs and interest rates dampened demand for houses. Overall, real estate assets in the countries considered here amounted to EUR 140trn. Quite surprisingly, the value of real estate is more than 40% lower than financial assets in Japan and North America. Furthermore, the real growth rates of real estate have lagged in most markets behind those of financial assets; in North America, for example, the annual gap was almost 1 pp over the last two decades, reflecting the fact that long-run capital gains for real estate are lower than those for equities.
The invisible value destroyer: transition risk
Although natural catastrophes are much more visible, the long-term impact of climate change on housing prices comes mainly through transition risk i.e. the energy consumption of buildings, particularly for heating. Projections of the House Price Index (HPI) in the UK under different climate scenarios up to 2050 show declines between -9.3% and -13.1%. For Germany, cumulative HPI declines could be as high as -24.5%. This would imply per capita losses of EUR32,380. Applied to all markets under consideration, home-owners could face losses of up to EUR30trn. In the future, housing prices are set to be defined both by location and energy efficiency.
Global wealth distribution: Waiting until 2100
The concentration of financial assets on a global scale remains extremely high. The richest 10% of the world's population – around 570mn people with an average net financial assets of around EUR273,850 – together owned 85.7% of total net financial assets in 2023. At least the share has fallen over time: two decades ago, it stood at 91.9%. But it is still much higher than at the national level where the unweighted average of all countries was 61.1%. At the pace of progress over the last two decades, it would take another 78 years to reach a “normal” – i.e. comparable to the situation within countries – wealth concentration at the global level.
Getting a seat at the table
However, the picture of global wealth distribution brightens somewhat if we look not only at the richest 10%, but also at the development in the middle. The number of the members of the global middle wealth class has risen sharply by +78% to around 850mn over the past two decades. In this process, the share of emerging economies has climbed from 43% to almost two-thirds. One in three members of this class now comes from China and one in four from the rest of Asia. The increasing participation of poorer countries in global prosperity is reflected even more clearly in the composition of the global high wealth class: last year, the share of emerging economies amounted to 34%; 20 years ago, these countries had virtually no presence in this class, with a share of 1%.
The rich are getting richer – but the poor are not getting poorer
At first glance, wealth concentration at national level has hardly changed: in 2003, the richest decile's share of net financial assets was 60.6% (unweighted average); 20 years later it was 61.1% – an increase of 0.5pp. Unspectacular. However, this conceals major changes in the individual countries, ranging from a minus of 7.4pp to a plus of 16.4pp, with more countries seeing a rising share than a falling one. The sharpest rise was recorded in China, reflecting the challenge of reconciling the unleashing of growth forces with fair distribution. However, despite rising wealth concentrations in many countries, the middle class has remained stable in terms of numbers in the vast majority of countries. The rich are getting richer, but this is not accompanied by a crumbling of the middle; there is no evidence of a social decline of broad sections of the population in the wealth data of recent years.