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Some facts about poverty in Germany

November 14, 2017

Germany has a booming economy but most Germans are not particularly wealthy. Hans-Böckler-Stiftung says that the danger of poverty in Germany is comparatively high and measures should be taken to avoid a crisis.

Symbolbild Armut - Flaschensammler
Image: picture-alliance/dpa/W. Steinberg

Here's a thought: Suppose your income falls away because you get so sick that you can no longer work. Disability insurance was too expensive and disability pension was out of the question. Another case: The retirement age is reached, but the state pension is so low that you cannot survive on it and you have no private pension to fall back on.

If this happens, financial security is inevitably under threat. Social welfare only intervenes when you barely have anything, including assets. And even if unemployment benefit or welfare assistance can be obtained, you are still mathematically below the poverty line.

When the money runs out for retirees

German assets are not enough

The Economic and Social Science Institute (WSI) of the trade union-supported foundation Hans-Böckler-Stiftung has applied this thinking to the basis of its latest report. How long can a German household keep its head above water until there is nothing left? The findings are that one third of households could sustain itself for a maximum of a few weeks or possibly a few months. At the other end of the spectrum, households at the upper end of the asset scale could, without further income, be able to hold on for at least two decades.

Read more: Poverty and social exclusion: Millions of Germans on brink

Assets are very unevenly distributed in Germany. Ten percent of the population owns 60 percent of the assets. The lower 50 percent of citizens have just 2.4 percent. There is also an East-West divide: East German households would only reach half as far as West Germans with their assets. Older citizens have more wealth, but single parents are the least well equipped to deal with a potential loss of income.

Infografik BTW 2017 People earn less in former GDR states ENG

Germans are poor Europeans

Germans tend not to have huge amounts of disposable income in the lower income groups, says Anke Hassel, the scientific director of the WSI. Among other things, this is because the Federal Republic is a "tenant country." Only about 40 percent of people live in their own house. On the other hand, 70 to 80 percent of Italians and Spaniards have real estate, some of which have experienced significant increases in value. "In other countries in particular, people in lower income groups can build up certain assets," says Hassel.

This is clearly true for many countries in Europe. But not for Germany — the economic engine of Europe — and despite a booming economy and low unemployment. According to a study by the European Central Bank (ECB), half of German households have zero to a maximum of €60,000 ($70,500) in assets after the deduction of debt. In Cyprus and Italy, average assets are €170,000 and €150,000 respectively. In France the figure is up to €120,000 — twice that of Germany. Even Portugal and Greece have a higher average asset value per household to Germany.

Living through economic uncertainty

Of the 50 percent of Germans who, according to the Hans-Böckler Foundation, are unable to generate significant assets, two sub-groups arise. On the one hand, the lower twenty percent of the population who live on social security benefits, such as unemployment benefit, social welfare, or the statutory minimum pension. They are commonly referred to as 'poor.' The other 30 percent are the so-called "lower middle class" who usually work full-time, but still have an income that means they live in permanent material insecurity.

Read more: IMF urges Germany to hike wages and invest

According to an evaluation by the Federal Employment Agency, more than two thirds of the employees who work in restaurants, hairdressing salons and in the temporary employment sector are now working on a low wage despite full-time jobs. So they earn less than two-thirds of the median income in Germany. At the end of 2016, this was €1,673 in eastern Germany and €2,176 euros in western Germany. This means the poverty trap is lurking at the end of the working life.

Infografik Kinderarmut in Deutschland ENG

More poor pensioners

In the face of steadily declining pension levels, Hassel warns of a ticking time bomb: "If on the one hand we have the lowering of the pension level and, on the other hand, asset poverty in the lower middle class, then we get great social problems," she says.

The WSI has therefore called for a reform of the social system. It argues that a government subsidy targeting lower and middle income groups is necessary for the amortization of real estate loans. In metropolitan areas, more investment in public housing is also needed. In addition, the WSI recommends an increase in the share of personal savings, which the state must not touch, even if a person is receiving unemployment benefits or social welfare.

"This means that the social security systems must be made poverty-proof to balance it out for the lack of wealth," says director Hassel. "Material insecurity certainly leads to populist attitudes, even in support of the AfD [right-wing party Alternative für Deutschland]," she quotes from the WSI study. "You have to take care of this group of society and deal with their economic problems."

Being poor in Germany