The desire to live in their own house or apartment is characteristic of almost all Czech residents, regardless of whether it is justified from the point of view of financial management and investment, writes 420on.cz with reference to the economic analysis of the IDEA analytical center at the CERGE-EI Institute. The authors of the study are renowned economists Daniel Munich and Michal Šoltes.
Poor and rich
The most surprising data concern the comparison of the well-being of different social groups.
It turns out that the poorest Czech families on average own assets of greater value than low-income households in Germany or France. Middle-income families with assets of about 100,000 euros in the Czech Republic are on a comparable level with neighboring countries, including economically powerful Germany and France.
Given the lower price level in the Czech Republic, this makes the local population relatively more affluent.
The situation changes dramatically when considering the more affluent segments of the population. Here it is found that those who are considered wealthy in the Czech Republic have, on average, significantly less wealth than their Western European neighbors. The gap is measured in multiples: a typical wealthy Czech family owns assets worth half as much as a family of the same social circle in Germany.
A legacy of socialism?
The key difference lies in the structure of savings. In the Czech Republic and in Eastern European countries in general, for the vast majority of households, the main dwelling – the house or apartment where they live – is the defining asset. This asset accounts for 80% of the total value of their property. It is noteworthy that even low-income families usually own some real estate, which has not been the norm in the West for a long time.
The authors of the study note a significant disadvantage of this model of wealth accumulation. In their opinion, the high share of primary residence in the total assets of Czech families means low liquidity and limited flexibility in asset management.
Other investment instruments, such as stocks, play a relatively minor role in the portfolios of Czech households.
Münich and Šoltes add that a large part of financial savings is concentrated in current or savings bank accounts and in conservative financial products like life insurance or pensions. Compared to Western countries, Czech families lag behind in terms of the share of funds placed in funds or shares.
The study demonstrates a clear pattern: while in the Czech Republic and Slovakia real estate – both primary and additional investment real estate – dominates the structure of household wealth, the further west one goes, the more balanced this structure becomes and the greater the role of financial assets begins to play.
