Aesop’s ant was a hero. It saved for a rainy day while the grasshopper sang and danced. But if interest rates were low when the famed fable was written, Aesop may have been well-advised to tell the ant to invest rather than save.
A modern-day version of Aesop’s fable has been playing out in the eurozone. The difference is that the now-wise grasshopper is winning by investing smartly.
The ant, on the other hand, is working harder to save more as its deposits bring no returns.
Allianz Research goes on the eurozone money trail to find out where the smart-saving grasshoppers and the hard-saving ants live...
One would say the ant is a rather good representative of Germany’s attitude towards money. ‘Wo Sparsamkeit haushaelt, waechst der Speck am Balken‘, believe the Germans. Loosely translated, it means ‘bacon’ – signifying prosperity – grows in homes that embrace frugality.
Traditionally, the Germans have relied on deposits and safe instruments to park their savings, shying away from investing in the risky capital markets.
Then, the going got tougher.
Eurozone savers have been caught between a rock and a hard place: interest rates linger around zero but inflation is nudging living costs higher. What has set one saver apart from another is the saving strategy.
You would think that the Germans – whose economic strength is known the world over – would be making money dance to their tune. But it’s actually the Spaniards who are beating the Germans at this game.
Between 2003 and 2017, both Germany and Spain have seen their per capita financial assets rise by around 70 percent. However, the Germans use their regular income for spending needs while the Spaniards use half of their investment income for meeting their needs and wants.
The difference? In Germany, the average household has only 7 percent of its assets in equity while in Spain, the proportion is 22 percent! This means that the Spanish have not only earned more from interest and dividends but also benefited from the rise in share prices in the period.
To wit, German households have received returns of 2.8 percent on their assets. In contrast, the Spanish have pocketed about 5.1 percent.
The Austrians too seem to have struggled like the Germans with a 2.9 percent return, while the Dutch have shown the same money-savvy as the Spaniards, allowing investment income to pay for their consumption.
Interestingly, Finland tops the 2003-2017 growth chart when it comes to per capita financial assets – a whopping 121 percent!
The bottom line is that financial assets can grow even in a zero interest rate environment. There are two ways: Either savers generate high returns by focusing their investment behavior more on the capital markets, or they inject more of their earned income into savings.
The choice is between smart saving and hard saving - being an ant or a grasshopper.