Tuesday, October 07, 2008

A National Personality When it Comes to Finances?

I was intrigued by this article from this past Saturday's New York Times:
Smarting From Crisis in the Past, Germans Approach Bailouts with Reluctance

Germans tend to be the strait-laced, play-it-safe types in financial matters. That has left them particularly frustrated at footing the bill for bank bailouts and fretting over their accounts because of a global financial crisis that seems to emanate from the spendthrift ways of others and the unfathomable risks taken by Wall Street bankers....

Unlike in fellow European Union countries like Spain, Ireland and Britain, there was no real-estate bubble here. Germans abhor credit. And few own stocks, just 5.4 percent according to a study by the Deutsches Aktieninstitut, a nonprofit group that promotes equity ownership. Instead, most Germans sock away 11 percent of their incomes on average into savings accounts, often with Sparkassen, municipally owned savings banks that are popular and stable.

In these days when culture seems more and more globalized and homogeneous, it's just fascinating to me that two developed Western nations could be so different in terms of how their citizens behave financially. Of course each country has a spectrum of people who are savers and spenders, but the difference in averages is astounding-- Germans save 11% of their income, and Americans save ZERO percent. How did this happen?


Ensoleille said...

It is also interesting to note, however, that due to employment regulations in Germany, their unemployment rate recently dropped to their lowest in over a decade - a whopping 7.6 percent! The way a country creates (or fails to create) jobs would most certainly affect how its citizens spend and save their money.

I vaguely remember hearing not too long ago (6 months? A year?) about protests in Germany regarding their employment laws...something about laying off experienced but unqualified (and thus perhaps overpaid?) workers go so that the next generation of workers could have jobs....It's kind of hazy in my memory.

Middle Class Hick said...

Having lived in several countries, I can attribute this to the way a country is brought up, and how they believe in money. Individuals are brought up by watching TV, Adverts, and what their friends and families believe, and what their churches and community believe. That is all what makes us believe what we believe.

The countries that have a lot of socialized things, they are not looking for huge amounts of growth, they are looking for steady (not necessarily slow). The problem with the US is we want fast, no I mean faster, (no I mean I want it now) type economy. We cannot look beyond our latest quarter to help ourselves down the road. So now you have to make your sales beat last quarter's sales or you are a crappy company. So people cook the books or do whatever they can to make those horribly inflated numbers, then they do it again the next quarter.

This is all just a matter of how people were raised. I personally don't have much credit, that was how I was raised. You don't buy a house until you have at least 40% down. You don't take a loan for a car, unless you can pay it off outright if you have to. All of my debt, I could pay off today if I sold every stock I owned. I was making more (well until recently :( in the stock market than the 4-6% I was paying on interest on my mortgage and car payment. So if I make 10% in the market, I am still 4% ahead.

At the end of the day, we have to have fundamental shifts in changes. Bush Sr. and Jr. are right, our economy is built on spending, and the more we spend (ie. stimulus checks, etc.) the more the companies "profit" and then the more our economy booms. However, when the checks are gone, and we are back to spending our regular money, and no one is saving, we get into debt and we have problems like we have now.

Oh well - I sleep well at night.

Chad @ Sentient Money said...

The Germans really have to be angry considering how conservative they are financially.

By the way, spending is only a short term boost to the economy. Investing more money is a bigger and longer-term boost. W's rebate checks are useless in the long run.

Gord said...

A bit of German perspective. I had a homestay student from Berlin this summer. He was quite frugal and it was easy to see hid did not like waste. We watched some TV together from time to time and he was flabbergasted at the number and intensity of commercials played during the show. He told me it was more than double here than he saw at home. Yes, media does affect us all.

In the thirties, most of the world was in a deep depression. Germany did as well but their crash was preceded by a period of hyper-inflation. This is something not quickly forgotten; it's an image of people with carts full of money, racing to the store for food before the price went up again. That may have something to do with it. The Germans I've met have tended to be disciplined and well organized. It does seem to be cultural.

Anonymous said...

Dear Madame X,
I am a longtime reader from Germany - and it is true what you write, the Germans are _much_ more conservative concerning money, investments etc. It's historical - Germany survived two wars in the first half of the last century. My grandmother still tells of her mother going to the bakery with a laundry basket of money just to buy a loaf of bread.

However, the attitude towards credit are changing - you can buy anything now and pay later (except maybe groceries).

I discussed the finance crisis with a colleague today, and she said that she remembers her father advising her to never, ever buy stocks or the like ... This of course means that most of the Germans' savings are in savings accounts and the like, earning only a tiny bit of interest.

It must be said that until recently retirement was something that was paid by the state - you pay into a mandatory insurance & get your retirement paid. Alas, no more!

Yu Jin said...

It is an interesting post. I remembered one told me that he was shocked that in US people can easily buy a car or a house at their 20s.

Anonymous said...

I am Turkish and I lived in the US back in the early 1990s. When I first got there, I found it shocking to see everybody was taking out 30 year mortgages to finance their gigantic houses. One of my American friends told me that was the American way and that the economy stood on spending and debt. At that time, the inflation rate in my country was around 80-90%, and mortgage was not available at all. For the last few years the inflation is around 10-12% and mortgage is now available here in Turkey as well. However, having lived through high-inflation, I just cannot dare applying for a long term loan or carrying any kind of consumer debt. I own a small two bedroom apartment which I have paid for in full. I do not think I will ever buy a car on credit. For me, if I have the money to afford something, I will get it, if not, then, too bad. It is sad to see that especially younger people are living like there is no tomorrow and taking out loans and racking credit card debt to the roof. Consumerism must be just as bad as alcoholism or drug addiction.

Anonymous said...

To the Turkish poster, you should purchase a house with a 30 year mortgage if inflation is high. If you can get a level interest rate and inflation is high, you will be paying back your house at grossly inflated dollars over the long term. So you will be borrowing money with more value and paying it back with less valuable money. It turns our to be good for the borrower.

I know several people who purchased homes 20 years ago. They said their mortgage payments were such a large portion of their income back then that they lost sleep. After relatively mild inflation they laught at how tiny their mortgage payments are in today's dollars.

uncommonadvice said...

The Germans are in it up to their necks just like the rest of us.

Anonymous said...

Anonymous @ 10/08/2008 11:06 AM:

The reason the Turkish poster is worried by inflation is that most mortgages there have adjustable rates for the full length. Fixed rate loans are much rarer because the interest rate charged is much higher.

Tim said...

i remember you could get car loans for 10 years in germany (albeit at very low interest rates).

i was in germany visiting friends a couple of weeks ago and we talked all about economy.

i'm not sure, but there seems to be a disparity between german financial institutions and german individuals in terms of risk and spendthriftness, because if german financial institutions were equally as spend thrift, they would have very little exposure to the current crisis.

the problem, is because of heavy regulation in germany, the lender is in much worse of a position than the borrower. i can see that the german financial institutions probably took on greater risk than the average german "joe" because of this.

there was no real housing bubble because property values have decreased in Germany since the beginning of 2000. much of this is because the rules favor the borrower, and because of how real estate works in Germany and not being necessarily demand driven. When you can't buy property because you aren't from that town, is a good example (this happened to my friend).

you also have to look at the fact german kids live at home much longer (and the age has been increasing).

although germans have a high savings rate, credit card use has gone up very much. how much of that is relayed into revolving debt I don't know. I do know that mentalities about saving are changing in Germany. It is funny that my friend is the play-it-safe saver, and her husband wants to spend money, which was a constant point that came up during my stay with them.

Anonymous said...

Though the attitude to money is different in every country, most of the european citizens are head over heels in debt and continue taking loans for various purposes: education, a new house, a car, consumer loans from companies like SterlingStore and then in takes years on end to cover these expenses. Frankly speaking, I do not like it.