It’s ten years since the eruption of the major financial crisis that almost caused the global financial system to collapse. What lessons have savers learned from this profound event? The answer is surprising and, at the same time, sobering.
Despite low interest rates, private investors in industrialized countries have, on average, invested around EUR 1 trillion of fresh savings in bank accounts each year since the outbreak of the financial crisis, more than in any other financial product. Last year a record sum of almost EUR 1.4 trillion was achieved. That means they held about EUR 33 trillion of their financial assets in the form of bank deposits at the end of 2016. Such investment behavior has paradoxical results. From this angle, banks are turning out to be the crisis winners, while savers are suffering severe losses due to zero interest rates. In 2016 alone, they are thought to have lost around EUR 300 billion owing to inflation, even though inflation was low.
This was not the intention of the zero interest rate policy pursued since the financial crisis. The abolition of interest on risk-free investments was actually intended to encourage savers to favor higher-risk investments such as shares or long-term investment products, which would help support the economy. What happened was the opposite. However, we won’t achieve anything simply by complaining about these cautious, liquidity-oriented savings habits. That’s not what we aspire to as one of the world’s leading financial service providers. Instead, these figures are an incentive for us to develop better and simpler products for more savers, so that we can finally overcome this “investment lethargy”. Digitalization gives us a powerful tool that can make it easier to access modern savings products. Because one thing is clear. Given the challenges that lie ahead – climate change and demographic change spring to mind – long-term, yield oriented investments are needed in order to protect our prosperity for the generations to come.
The situation with regard to savings is not much better in emerging markets. Private assets have achieved very high growth rates in some cases, even after the financial crisis, with more and more people sharing in global prosperity and thus becoming part of the new global middle class. However, it is estimated that less than 20% of financial assets are invested in long-term savings products. Often investors simply lack access to investment opportunities beyond a basic bank account. There is widespread need for action. Digitalization could be the key to success in these countries as well.
Source : Allianz