The number of shareholders has only increased slightly for years. The fear of stocks is still great – especially among women. Experts consider the government’s latest pension plans to be a “drop in the ocean”.
Many Germans are afraid of stocks. Experts believe that poverty in old age is a much greater risk, especially for women. Investing in stocks could alleviate poverty in old age. The federal government could have taken bold steps with the stock pension to reduce fears – but it didn’t. A missed opportunity?
Women have an average pension of around 900 euros
“Women are even more afraid of stocks than men,” says Annika Peters, from the independent FrauenFinanzBeratung in Stuttgart. Many compared stocks to casinos. In her pension seminars, among other things, Peters tries to reduce the so-called fear of stocks. The seminars are taking place online due to high demand. According to the expert, up to 100 women register regularly.
Peters shows startling figures right at the beginning of her seminar. If you only look at women’s own pension entitlements, they have 42.6 percent less pension than men. According to the German Pension Insurance, in 2022 women received an average monthly old-age pension of 890 euros per month.
But retirement doesn’t look rosy for men either, says Peters. Everyone must therefore make additional provisions with shares. For this reason, they are a central component in the FrauenFinanzBeratung seminars. This is particularly important in Germany, as Germans are very critical of stocks.
Shareholders in Germany in the minority
A study commissioned by Deutsche Börse speaks of “Germans’ stock phobia”. The causes: the combination of risk aversion and overestimated risk, which arises primarily from too little information. This is the result of the study.
Private households continue to hoard the majority of their financial assets in the form of cash or park it in checking and current account accounts – despite low interest rates in recent years and occasionally high inflation. In contrast, the so-called share participation rate in Germany was only 16 percent in 2018. In the USA it was 54 percent.
Since then, only a few shareholders have been added in Germany, currently 17.6 percent of the population. “When it comes to stock culture, Germany is a developing country. Despite extensive educational work, the number of shareholders has hardly changed for years,” says Deutsche Börse.
Decisions are often postponed
Instead of supplementing their retirement provision with stocks, many would rather do nothing, explains Professor Alexandra Niessen-Ruenzi. She is a professor at the University of Mannheim and deals with empirical capital market research, particularly with the topic of gender differences.
Given the current inflation rate, “burying your head in the sand” is not a good idea. However, actively engaging with it is often postponed because, particularly among women, ignorance and a lack of confidence in their own financial decisions lead to fear of contact, says Niessen-Ruenzi. Only 38 percent of all shareholders in Germany are women.
The stock pension that the federal government wants to introduce could have been an opportunity to reduce fears of contact, says Professor Niessen-Ruenzi. As the stock pension is now being considered, “it is just a drop in the ocean.” The plan is for twelve billion euros plus dynamization to flow annually into various assets in the future. The federal government bears the risk and the money is financed through loans. Germans’ pension contributions are not used for this purpose.
Sweden as a role model
Niessen-Ruenzi believes that a lot more money should be invested in stocks and that citizens should be involved. The Swedish stock pension system is exemplary. In these systems, part of the insured person’s pension contribution is invested directly on the capital market. In Sweden that is 2.5 percent.
The insured can decide whether they want to invest in a state-managed equity fund or instead in other pre-selected equity funds. “That means there is an incentive to look into the issue and make a decision,” says Niessen-Ruenzi.
In Sweden, the size of the stock pension share of the total pension payout depends on how the market develops. This can be good for the insured, but it also creates uncertainty that cannot be explained away, explains Niessen-Ruenzi.
Positive return in the long term
But she believes the risk is manageable. A look at the past decades shows that long investment periods on the global stock market generate an average positive return of 7.5 percent. The state-managed Swedish equity fund also had losses. However, over the years the returns are positive on average.
This is also what Peters conveys in her seminars. Time is a friend. She advises her participants to invest long-term and regularly and not to become restless in times of crisis. “Even if you had invested shortly before the financial crisis in 2008 and then made a loss, the money would be worth significantly more on average today if you didn’t withdraw it,” says Peters.
More financial education in school?
In order to reduce fears, it is important to improve general financial education among the population, says Niessen-Ruenzi. She therefore calls for financial knowledge to be taught at school in order to reach the general population.
Peters also thinks it is important to close this knowledge gap. That’s why she gives her online seminars. Financial education in particular is an important key to financial independence. “Knowledge is power here, and women should have this power over their lives and their money.” It’s the same with men.
The state pension level is currently 48 percent. This means: The pension is 48 percent of the average gross income of Germans – but only for those who have paid into the pension for 45 years. It should remain at this level in the future. In order to live well, everyone actually has to invest privately in stocks to protect themselves, says Peters. The Germans’ current fear of stocks is costing them a lot of money. Anyone can build up a retirement provision with stock funds, even with small amounts.