Financial Assets: Strong Growth

As might be expected, this enormous wealth is not distributed evenly across the world. In fact, around half of all private financial assets are concentrated in just one region: North America (Figure 2)¹. Remarkably, America‘s share has hardly changed in the last 20 years, despite the rapid rise of China, whose share is now around 15% – a fivefold increase compared to 2004. In fact, China‘s rise has come at the expense of other developed regions: Western Europe and Japan have lost significant market share over the last two decades, with Europe down 9.1pps and Japan down 5.9pps; Japan‘s share has thus more than halved.

This broad stability in the American share means that the financial assets of American households have grown in line with the global average over the past 20 years. In 2024, however, their growth was significantly higher. This is in stark contrast to Western Europe and Japan, where growth lagged the global average by over 2pps per year in Europe and just under 4pps per year in Japan (Figure 3). When adjusted for inflation and population growth, a similar picture emerges (see box: “The impact of inflation”). Combined with the sheer size of American
financial assets, this means that, for example in 2024, more than half (53.6%) of the growth in global financial assets was generated in North America. Over the last two decades, this figure stood at 48.5%. China, on the other hand, accounted for only 19.8%, while Western Europe accounted for 14.1%. When it comes to financial wealth, the US continues to call the shots.

The fact that financial assets in the US are growing faster than the global average is a relatively recent phenomenon (except for 2022, a particularly challenging year). In previous years, especially after the global financial crisis, the US also lagged significantly behind. The turning point can be dated fairly precisely to 2017, the first year of President Trump‘s term, when trade conflicts between the US and China became openly apparent, effectively marking the end of uninterrupted globalization and the ever-increasing integration of emerging economies into the global division of labor. Since then, their growth advantage over advanced economies has shrunk significantly. By 2024, it is expected to rise again to 4pps; however, this compares with an average growth gap of just under 14pps in the decade prior to 2017 (Figure 4). Examining the development of financial assets reveals that, in an increasingly fragmented global economy, the process of convergence between richer and poorer countries is stalling.

American supremacy is also reflected in per capita financial assets, at least when looking at averages: in fact, only the Swiss are richer than Americans. All other countries follow at a considerable distance (Figure 5).

While the top two spots have remained unchanged for years, there has been some movement among the top ten. Two decades ago, Taiwan, Sweden and Australia were not yet part of this illustrious circle, which included Belgium, the UK, and Japan instead. The Netherlands is the richest Eurozone country but only at eighth place in the ranking, down from third place in 2004. A word about Germany, which has moved up from 17th to 15th place this year, thanks to an extensive data revision that led to a significantly higher valuation of unlisted equity interests. This makes it one of the few Eurozone countries – alongside the Baltic states and Malta – that have been able to improve their ranking in recent years. And China? It now ranks 31st, up nine places from 2004.

 

Does the extraordinary growth in American financial assets hold up under closer scrutiny when adjusted for population growth and inflation? Figure 6 provides the answer. On a per capita basis, the annual growth rate is 0.8pps lower globally. This decline affects all regions except Japan, where per capita growth is slightly higher due to the falling population. Adjusting for inflation has a disproportionately greater impact. Globally, growth then falls by more than half, to around one-third in Eastern Europe and Latin America. Only two markets stand out in this regard: Japan and China. Although real growth is lower here too, the discrepancy is not very large. In fact, real per capita wealth in Japan has grown slightly faster than in Western Europe over the last 20 years. China's lead over the rest of the world is substantial in real terms, with a growth advantage of almost 10pps per year. In fact, the purchasing power of average per capita financial assets has increased almost tenfold in China in just 20 years. The countries closest to achieving this level of prosperity are Bulgaria, where real per capita financial assets have increased by a factor of eight, as well as Romania and India, where there has been a fivefold increase. And what about the US? Here, the purchasing power of financial assets has 'only' increased by a factor of 1.6 over the last two decades. However, this figure is significantly higher than those for Western Europe (1.3) and Japan (1.4) and is roughly in line with global trends. Therefore, even after adjusting for population growth and inflation, American financial assets are keeping pace with global developments.

However, inflation only became truly painful in the aftermath of the pandemic, reaching double-digit rates in some parts of Europe. The continent has not yet recovered from this; in 2024, real financial assets in Western Europe are expected to be 2.4% below their 2019 level. The global trend is slightly more favorable, with real growth of 16% recorded over the last five years. However, real financial assets remain below their 2021 level (Figure 7).

There are significant regional differences. Asia (excluding Japan and China) experienced strong real growth over the past five years due to relatively low inflation rates. Real financial assets at the end of 2024 will be 29% higher than in 2019. China's growth is even more impressive, at 56%. Growth in Japan (9%) and North America (14%) was more modest. Unlike Western Europe, however, these regions also achieved real gains in prosperity. In fact, Western Europe is the only region that can look back on five lost years.

What explains the significant variation in the performance of financial assets? The best way to answer this question is to break down the increase in assets into its two components: savings and price increases.

First, let's consider the latter. It is primarily securities, especially stocks, that lead to increases in portfolio value. In this respect, the last two years have been extremely gratifying for savers, with the continued stock market boom bringing strong gains. This is reflected in the significantly different growth rates of the three main asset classes: bank deposits, securities (including investment funds) and insurance/pensions (Figure 8). In both 2023 (+11.5%) and 2024 (+12.0%), securities grew almost twice as fast as the other two asset classes: insurance/pensions (+6.7% and +6.9%, respectively) and bank deposits (+4.7% and +5.7%, respectively). This growth advantage also persists in the long term, though it is less pronounced as stock markets do not only experience good years. Nevertheless, over the last 20 years, securities have achieved an average growth rate of +6.9%, which is significantly higher than the growth rate of total financial assets (+6.1%).

However, to benefit from positive developments in the stock market, savers must first include these securities in their portfolios. Securities are, in fact, by far the most important asset class. At the end of 2024, they accounted for 45.1% of global financial assets. This is a new record. Despite some setbacks on the stock markets, the importance of stocks, investment funds and other securities has risen steadily over the last two decades: overall, their share of portfolios increased by almost 7pps compared to 2004. Conversely, the share of insurance/pensions declined by almost 7pps to 25.8% over the same period – also a new “record”. Finally, bank deposits increased their share slightly to 26.7% (Figure 9).

These global figures mask large differences between countries and regions, and thus the extent to which savers benefit from rising securities prices. Notably, it is primarily North American savers who are investing in securities, with a portfolio share of 59.2%. This was not always the case; after the global financial crisis, this figure fell below 46%. Securities also play a disproportionately large role in South America, although these are more likely to be other types of equity than listed shares. In Asia, on the other hand, securities generally play only a minor role, likely due in large part to the underdeveloped state of financial markets in the region. This explains the importance of bank deposits in the region (as in Eastern Europe). However, this argument certainly does not apply to Australia, where many savers are indirectly involved in capital markets through pension products (so-called superannuations). Western Europe, on the other hand, is characterized by a balanced portfolio structure, with securities significantly less important than in North America. These different portfolio structures demonstrate the wide variation in savings behavior around the world. They also explain why, in contrast to their Japanese and European counterparts, North American savers have succeeded in increasing their financial assets in line with global developments in recent years. This is even though the already very high level would actually suggest weaker growth, as can also be observed in other developed regions.

In 2024, savings increased sharply by almost 35%, reaching a total of EUR4.2trn (Figure 10). While this remained well below the peaks of the exceptional years of 2020 and 2021, it clearly halted the downward trend of the previous two years. The increase was observed in all the regions considered here, with North America experiencing the strongest growth, at over 39%. This region accounted for over half of the new savings, totaling EUR2.3trn.

Another striking feature was the strong recovery in bank deposits. After receiving no net new funds in 2023, primarily due to the behavior of American savers who withdrew EUR500bn from bank deposits and invested it in higher-yielding assets, primarily bonds, 28% of new savings flowed back to banks in 2024. This is significantly higher than in the previous two years, but still significantly lower than in the pre-pandemic years, when this figure averaged over 40%. The “rediscovery” of bank deposits is therefore likely due more to falling interest rates making the opportunity cost of leaving money in a current account lower, rather than to their attractiveness. This is also evident in Japan, where the delayed interest rate turnaround caused the proportion of savings in bank deposits to fall to a historic low of 25%.

Securities, on the other hand, suffered a slight setback after the highs of previous years, with net purchases falling by 11.9% to EUR2.0trn. Nevertheless, this remains the second-highest level ever recorded after 2023. More than three-quarters of these purchases were made by American savers. As expected, preferences changed again: bonds were in low demand, accounting for less than 4% of securities purchases, and American savers were net sellers after adding over EUR1trn in new bonds to their portfolios in 2023. Only Japanese and Italian savers remained loyal to this asset class. Japanese savers increased their purchases and although Italian savers bought significantly fewer bonds than the previous year, their 2024 purchases far exceeded those of all other Europeans.

Shares, on the other hand, were in greater demand once again. With share purchases totaling EUR818bn, a new record was set in 2024, surpassed only by the exceptional year of 2021. This development was exclusively driven by American savers; in all other regions, shares were sold on balance (albeit only to a very limited extent). Investment funds, however, recorded strong inflows everywhere, rising to a total of EUR1.1trn (+19.7%), roughly the same level as in 2021. The triumph of Exchange Traded Funds (ETFs) is likely to be one of the main reasons behind this development.

Insurance/pensions also regained favor with investors, with inflows of EUR965bn (+19.0%), the highest in over 10 years. However, this cannot hide the fact that most savers remain cautious about insurance and pensions. They accounted for only 23% of new savings. In the years and decades before the pandemic, this figure was consistently above 40%, sometimes reaching 50%.

American savers also demonstrate a clear preference for securities when investing new savings. In 2024, for instance, they accounted for 67% of fresh savings, compared to just 26% in Western Europe (Figure 11). This consistent focus on investment vehicles with high potential for value appreciation has paid off. While financial assets in North America grew by an average of +6.2% per year over the last 10 years, Western Europe achieved an average growth rate of just +3.8%. However, savings efforts are higher in Europe: on average over the last decade, savers here mobilized an additional 2.3% of their financial assets in fresh savings, compared to 2.0% in the US. The key to strong growth in financial assets was the high proportion of value increases. Over the last 10 years, increases in portfolio value contributed an average of 67% to annual growth in the US, compared to 35% in Western Europe. A comparison with Germany is instructive: Germany has also achieved relatively high financial asset growth (+5.9% per year) over the last ten years, but in a different way: fresh savings amounted to 3.7% of existing financial assets per year – almost twice the figure for the US. At the same time, the contribution of value increases was only 32% – less than half that of the US. This comparison shows the difference between “hard” and “smart” savers.

Of course, this perspective can also be reversed. By changing their savings behavior, European savers could achieve significantly higher returns with the same effort. Financial asset growth in Europe appears far from exhausted, with plenty of room for improvement (see box “Capital at rest: The untapped potential of Eurozone household savings”).

Households in the Eurozone continue to allocate a disproportionate share of their financial wealth to low-yield, highly liquid assets. As of December 2024, private households in the Eurozone held more than EUR10.8trn in bank deposits – capital that remains largely idle from a productive investment perspective.

According to the ECB’s Distributional Wealth Accounts, bank deposits account for more than half of total financial assets even among the wealthiest households. Only the richest decile is an exception as business ownership is the largest item in the financial balance sheet (Figure 12). This conservative savings behavior has proven remarkably persistent over time, even amid rising inflation and increasing long-term investment needs. It limits both individual wealth accumulation and the capacity of Europe’s financial system to channel private capital into long-term, growth-enhancing investments.

The potential from a simple asset shift is huge. For example, if the sixth decile were to shift half of its bank deposits into higher-yielding assets such as shares, bonds and investment funds, it would generate a higher return of around EUR 10,560 over the next ten years – without taking into account the savings generated during this period. ³ In the ninth decile, this excess return from a one-off shift would be EUR28,370. In terms of disposable income, this would be an increase of +19% and +32%, respectively, compared to an unchanged portfolio structure (Figure 13). These “additional” savings could be used to even out spending, as well as to be invested in private pension provision – which is becoming increasingly urgent in view of demographic change and the associated decline in the viability of state pension systems. But it is not only private households that would benefit from a more risk-oriented investment strategy: Together, these four wealth deciles have bank deposits totaling EUR4.2trn. A shift towards capital markets would give a huge boost to the European project of a Savings and Investment Union (SIU).

Global financial assets are expected to continue growing in 2025, albeit at a much slower rate than in the previous two years. While stock markets remain in positive territory and have proven resilient to political turmoil, valuations are high by historical standards, especially in the US. This makes the potential for a setback correspondingly large. This is especially pertinent given that the full impact of US trade policy will only become apparent in the second half of the year. Monetary policy is unlikely to provide any support. Interest rates are already low in Europe, and persistent inflation in the US – which is more likely to rise than fall because of tariffs – continues to cause headaches for central bankers. Substantial interest rate cuts are therefore out of the question on both sides of the Atlantic, even if economic growth is likely to be weaker. The uncertainty over US trade policy is also casting a shadow over investment and savings decisions. Consequently, savings efforts are also likely to be somewhat weaker this year. Taking these factors into account, we expect global financial assets to grow by around 6% in 2025.

The medium-term outlook is even more uncertain, especially considering the question of how AI will shape the economy and markets in the future. Forecasts range from a new industrial revolution leading to a golden age, to only marginal changes comparable to the digital “revolution” we have seen so far. While this revolution has undoubtedly had, and continues to have, a disruptive impact on society, it has left hardly any trace in productivity statistics so far. It will probably take several years before we can reliably determine which narrative will ultimately prove true. For the time being, further developments will be determined by the current high level of political uncertainty, both nationally and internationally. There is no room for illusions here: a fragmented world means lower growth and returns for everyone. Against this backdrop, only modest growth of +4-5% in financial assets can be expected over the next few years, until AI catapults us onto a higher growth path – if it does at all. However, one thing can be predicted with relative certainty: volatility will continue to increase. The caprices of politics are likely to keep the economy and markets on tenterhooks for the foreseeable future.