Being German I want to pPoint out that the article leaves out one cruicial detail: Building your own home puts you into debt for quite literally the rest of your life. We do not like debt.
We live in a small to medium size flat for 380€/month, including some running costs. Buying it would cost roughly 250k. That just doesn't pay off. Most medium sized houses are about 700k€ in the region, with typical software developer wages at 2-4k€/month before taxes. So 1.5-2.5k€ after taxes. Now go figure how long you will be in debt...
And of course, people are older nowadays when they start to earn. For example, my parents started working with 16. I visited a technical school up to age 19, had to do a year of civil/military service, then worked 2 years to save some money, then did a CS bachelor. A bachelor alone is "no real degree" here, so also doing an MSc. Working while studying to afford the studying prolonged the studies a bit.. and in the end I started with my first real OKish earnings at age 28 when I started with my PhD. So... yeah. At the bank they laughed at my income when asking for a loan for a flat.
But this can also happen if you own a house, because there are running expenses for municipal taxes, validating the plumbing every X years, renewal of the boiler system before every winter starts, cleaning the snow or paying someone to do it....
There was a comment I read here recently about how a mortgage is in some ways a vehicle for forced savings. Not enough to retire on alone of course, but a big check if you ever need it.
In France major cities outside Paris, I'd expect a 150-250k flat to be 600-800 euros/month in rent.
If you pay only 380€ per month for rent, it's really not worth buying.
Wow that's a pretty insane rent to purchase price ratio, seems not that dissimilar to Vancouver which is a gong show.
it's an old rent contracts and the newly-rent-value would be around 600
To explain cultural difference:
- In the US you are considered financially stable if you are always paying your debt/credit on time.
- In the germanic countries you are considered financially stable if you have none.
My US Bank clerk needed a few meetings to convince me that it is good to build go into monthly credits (creditcard) to support my credit score.
Getting a home loan is difficult. I don't have any bad credit at all but not much installment loan history.
Uhmm, can't a bank see your salaries? Because in Turkey they want to see your salaries. You enter to www.turkiye.gov.tr and print out your last 12 months salaries with a validation number and then hand it to your bank. Or you ask from your employer, he ask it from Social Security, travels back to you and you hand it to your bank.
Then they check wheter you had missed to pay back your credit (even to another bank, because they share data). And they check wheter if you were rejected by an another bank (because they share data).
Basically, your score is high if your salary is high.
It's stupid.
It would obviously be better if we judged creditworthiness by your bank balance history. But this is apparently hard/impossible to show.
Happened to me too -- I was working at my first job for 18 months but had never gotten a credit card. I had never had debts and was asking for a mortgage less than 2x my salary while making 3x the median income for the area and at its largest employer; still classified as subprime.
What's worse is that I could go to the annual credit report services and get my score, which would show it as 740, but then any actual lender I went to wouldn't see the 740; they'd see "no data", which puts you in the subprime bucket.
I would be auto-rejected even for $500-limit store credit cards.
(It's been since resolved and I've had a credit card for a while but still, very screwy.)
I get warnings for not having more credit cards.
Germany has one of the lowest adoption rates of credit products such as the humble credit card out of nearly all Western nations.
Debt is not liked.
Edit: From the same site, the linked article at the bottom has the answer: http://qz.com/262595/why-germans-pay-cash-for-almost-everyth...
A better link: http://www.businessinsider.com/you-have-to-understand-german...
Not surprised that those countries suffer from government shutdowns over how much the debt ceiling is raised.
On the other hand: The government shutdown because of the debt ceiling seems just like "Stop hitting yourself" on the playground.
And Germany's budget is far from balanced.
The article speaks of consumer debt, I spoke of consumer debt.
Government debt is a different thing, and a government without any debt doesn't sound like a wise thing if it is even possible in such a highly integrated and globalised world.
Hmm?
http://www.bloomberg.com/news/articles/2016-08-17/germany-pl...
"Germany recorded a Government Budget surplus equal to 0.70 percent of the country's Gross Domestic Product in 2015. "
While it's true that the budget is not balanced, a 0.7%/GDP surplus is pretty darn close.
However the fact that the government jumps through all sorts of hoops to be able to say the budget is balanced is at least an interesting indicator that it does seem to matter to enough people.
Otherwise even the US would have a balanced budget and no debts. (Ignoring the fact that the US is the main force behind trying to change the account rules to make them look less bad.)
The difference is that parties that try to pull that in Germany not only loose elections, but are punished so hard by voters that they can't even get over the necessary 5% requirement in the next election.
Have a look what happened to the FDP after they pushed through lower taxes for hotels.
Signing into some unnecessary additional financial product with comically obsolete interest rates, just to manually repay it in the random timeframe in which the (still unnecessary) credit is free sounds like a bad idea.
It's probably only there to nudge people into paying interest on money they already have.
Are you talking about the 0% APR period, or the monthly revolving cycle? The latter is absolutely predictable, and if you dislike manual payments you can always set up automatic ones.
Handling debt responsibly is a different skill from handling cash responsibly. When it comes time to buy a home, for example, which 99% of people will need credit to do, the banks want to see that you can handle debt responsibly, since that's what you're taking on.
Edit: Also, see my reply to GP comment that explains some of the other benefits of using a credit card.
If I'm going to loan you $1,000 I'd like to get references, talk to all the other people you've borrowed money from and ask them if you paid it back to show you are able to handle debt. You get other people to vouch for you that you are good on that $1,000. If you have nobody to vouch for you I'd be more hesitant to loan you money. Or ask you for a higher interest rate.
This gives you an incentive to borrow money and always pay it back. In fact just having an open line of credit you aren't using makes you look better. "I have the opportunity to max out my cards but I am not."
Its perverse but it does make logical sense. Its a different kind of responsible.
The other reason people use cards is many cards, as an incentive to get you to use them, give you perks. For example, airline miles, hotel points, cash back, warranty extension, price protection, purchase protection, rental car insurance, etc, etc.
In practical terms, because in the US the handling of debit card fraud and credit card fraud is vastly different.
In the case of debit card fraud the money is gone from your account and you then spend some months trying to get it back. In the meantime, you don't have that money.
In the case of credit card fraud, you contact the credit card company, they reverse the charges, and then it's their problem after that point, not yours.
Assuming you have any self-discipline at all, a credit card is a _much_ better idea than a debit card in the US.
> Isn't the best credit history one where you never need credit in the first place?
The best credit history, if being used for the sane "will this person make timely payments on this loan?" reason, would consist of a history of timely payments on exactly this type of loan, with no debt outstanding right now.
Never needing credit before may mean you always had lots of money, or that you simply never tried to do anything that involved any large amounts of money and now you want to do such a thing....
Similar cards carry similar benefits, I'm sure. All you have to do to reap them is get the card, use it instead of your debit, then pay it off appropriately.
And in the event that your card is stolen, a credit card is always better than a debit card, because then money isn't stolen from your own personal bank accounts.
Obviously it shouldn't be this way, it should be possible to save and buy these things outright. But since it effectively isn't (for many people, in many places) I wouldn't fault people for taking on debt to do things like put a roof over their head or get to work on time reliably.
Of course using your overdraft is totally fine, but using the evil credit cards even when paying in full is just like declaring bankruptcy. Doesn't help payment services in Germany that Visa/MasterCard is always considered an evil credit card and debit brands aren't too common.
The reason they are "evil" is that they charge the dealer the by far largest fees. Cache: no fee. EC card: small fee. Credit card: large fee. And of course I can't ask the customer to pay for it, I must have one price for all. It was something like 1% vs. 3% (approximately(!), just to give an idea of magnitude).
It's not even any more convenient. Except for a few places like car rentals, where the credit card serves an insurance function (the rental deposit), there is exactly zero reason to point to convenience. Just use an EC card or a bank card that's attached to the major payment processing networks, everybody has one.
On the other hand, most credit cards cost a yearly fee of 20-70 Euros or so. The only reason I grudgingly pay for one is because I rent a car occasionally.
I rent cars quite frequently with the boring free VISA debit card from my normal checking account. I never knew that there are restrictions on which cards can be used for renting.
For example, I rented twice this year - I don't own a car and usually use the train - and the first time they wanted my to enter the PIN for the credit card, which I didn't know. A big hassle, they took (real!) money off of my EC card (which I got back afterwards).
The second time I didn't need a PIN (different car rental company), but they helped themselves to almost 800 Euros in alleged damages from my credit card (good thing I had used an online service and opted into the "we pay the deductible", which was 1,000 Euros, on the full insurance I had also selected to get).
Technical limitation of the German debit card scheme, which doesn't support blocking amounts for security, but requires refunds...
Because it just magically transfers from your register to your bank account? :)
>It was something like 1% vs. 3% (approximately(!), just to give an idea of magnitude).
I know, but by now it is down to 0.9% for most retailers so not accepting credit cards is always an interesting decision.
>most credit cards cost a yearly fee of 20-70 Euros or so
When you get a card to collect airline miles or get the card from your bank. Most other banks (Advanzia, Barclaycard, LBB) charge nothing for it, but make up by charging high interest rates. Still most have an interest-free period, which can be beneficial for consumers.
> zero reason to point to convenience.
Regular cards still don't support contactless. Just tapping your card is vastly better than entering your PIN or signing. A lot of retailers in Germany support it.
> Because it just magically transfers from your register to your bank account? :)
> Regular cards still don't support contactless
Well, there usually is a fee. At least here in the US, business bank accounts get cash handling for free up to a certain amount per month. After that you're charged a small fee (as a percentage) on the amount of cash deposited, because the bank sure as hell isn't counting your cash for free.
I thought there is a machine for that? Also, isn't it possible just to use an ATM?
This is for business accounts, which have vastly different fee structures than consumer accounts, because businesses have more money, and also because it costs them money (either in employee time, or having machinery available). Do you let your customers use your time and stuff for free? No? Then why should the bank? Hence why they charge.
Visa/MasterCard debits are extremely rare in Germany.
Oh, I realy miss this. In my country it is impossible to find a normal card, all are contactless by default. Even if you'd like to get a normal one for security reasons you can't - banks don't offer them.
As a near-annual visitor to Germany, it drives me nuts that I can't use my Australian credit card everywhere (especially at Saturn). I would LOVE to have an EC card, but it seems there's no way easy way for a visitor to Germany to get one. Seems you need a bank account, and there doesn't seem to be a way to get one without a residency permit. It's not like Australia where a visitor can at least buy a pre-paid reloadable Visa Debit card in any post office.
[If I'm wrong about the EC Cards and bank accounts, please let me know, I'd love to use an EC Card like a proper German whenever I visit.]
0.23% EC
0.5% Maestro/VPay/MasterCard Debit/Visa Debit
0.8% MasterCard Credit/Visa Credit
2.5% Amex
But of course that depends on the size and the negotiation skills of the retailer. I'm always envy when visiting the Netherlands, "PINNEN ja graag" signs everywhere :)
However, I am not sure if this also applies to Australia or only to other European countries. But if you're really interested it might be worth checking it out. (Also, I think their website is only available in German, so you would need to understand / find someone who understands some German to sign up.)
Debit cards, that's another story. Most people pay with their debit cards instead of cash. It's convenient, even more so since the introduction of contactless bank cards.
Except if you live in some rural area...
That said there are definitely credit cards, usually linked to big retailers (Auchan, etc.), but are they that popular?
Average credit card spending per French annually is $300 -- so quite insignificant compared to Americans (which would be almost half their annual salary if not more).
Yes it is called "carte de crédit" i.e. credit card but when you think about it, it is not actually credit.
In Canada, paying with VISA/Mastercard is considered as credit i.e. debt. You can pay with VISA even if at the present moment, you do not have the cash in your bank account. Banks, VISA and others like this because they will then be able to charge you 25 to 35% of the amount at the end of the month if you do not pay in time.
It does not matter then to compare average spending or number of transactions since it's two different meanings.
Strictly speaking a credit card is a "carte de credit", however between the simple translation with english, the similarities between the form factor etc, A LOT of French (especially not used to the US credit card) will call their debit card 'carte de crédit'
Their is a lot of confusion on this, but most of the time french people use debit card. In fact I think banks almost don't advertise credit card, only companies offer this (airlines/supermarket)
On the technical side, there is no difference most people have visa/mastercard
[1] https://www.fca.org.uk/publication/market-studies/ms14-6-2-c...)
So the card says "Visa", the transaction runs through Visa and the money comes directly out of the bank account. It's also common to use a different payment network (debit) and to have a card that pays for the purchase on credit. Annual rates are currently 13%-23%, so the monthly interest is 1%-2%.
I thought chip-and-PIN was the standard over there?
I've had the exact opposite in the US, getting asked if I'm sure I'm okay with entering my PIN having presented a chip-and-PIN card, seemingly expecting me not to know my PIN.
And it still does. I still don't know what would have been the point to make a loan to buy a bag of potatoes, but well... Cultural differences.
That in the past Germany was not so sensible about its budget.
My rather simple (and completely argumentative) explanation is that Germans generally are less enthusiastic about taking on debt to finance things. Psychologically I'd say it's rooted in the fact that the results of hyperinflation are very much in the minds of people and there's a tendency of "don't borrow if you can save for it". Since the only realistic option for buying houses is taking on debt, less people do it. I feel this mindset is slowly going away though. Another point in favor of this "theory": credit cards are relatively uncommon compared to other countries (that's also changing imo).
I feel like home ownership is even less of a useful concept these days with ever shifting jobs so I think we accidentally stumbled upon the right strategy.
Edit: There's also quite a few buildings that are owned by a "Wohnungsbaugenossenschaften" (basically a https://en.wikipedia.org/wiki/Cooperative for housing)
People are still buying and building houses here, especial in rural areas. It's mostly the cities where things simply have become unaffordable for most people.
Like with many things, the devil is in the details. I'd say a 1 to 5% inflation rate is preferable, a 5 to 10% inflation is livable rate, 10 to 20% is starting to get tense, more than 20% and then everything is suddenly more expensive and you risk don't having money to get you through the month. Yes, some of your nominal debt might go down, but, then again, you still probably have to buy gas every couple of days (which is most probably imported, so its price has gone up), with more expensive gas comes more expensive merchandise (things like food, clothes and the like) because carrying stuff around consumes gas, your heating and electricity bills will also probably double of triple in value in a matter of a couple of years, and so on and so forth (not to say that you can forget about more-than-basic stuff like having a vacation abroad).
"My fault" -> "Meine Schuld"
"My debt" -> "Meine Schulden"
I think both also behave as mass nouns, so there's rarely any ambiguity.
I think the big distinction is that -- unlike nearly anything else you might buy on credit -- houses don't really depreciate. Even without the overall rising house prices, relatively few people value a 20 year old house at a meaningful premium over a similarly-sized 40 year old house. So it's comparatively easy to justify as an asset counter-balancing the debt.
Housing is a constant expense. If you rent practically speaking you are in debt to your landlord every month. In the US and many other countries on the list where home ownership is prevalent although you are in debt to the bank you are also paying yourself in a round about way in the form of equity(principal) that you have in the house. So you are actually saving rather than spending which is generally financially conservative.
As the poster above you mentioned Germany doesn't incentivize home ownership via tax breaks and I think thats the key difference.
However home ownership is also considered a luxury. Not only is there not as much of a tax incentive as in the US and not only does it require you to take on life-long debt, but there are also a lot of expenses the landlord would have to pay for but a homeowner has to pay out of their own pocket.
The obvious example are routine maintenance like roofing and plumbing, but also drainage or the cost of public works: if the house sits on a street corner and both streets get modernized, you may end up having to pay for both.
The expenses when renting on the other hand are much more predictable: you just pay the rent and utilities and whatever one-off costs come up have to be spread out via an increase in the utilities bill or swallowed by the landlord.
So if you want to build or buy a house, you're expected to save money for paying for these fun surprises as well -- because having to take out a loan is a sign of poor planning, if the bank even grants you one on top of the financing for the house itself. Add everything together and home ownership becomes nothing more than a luxury.
In the case of "formally a company car", leasing is not perceived as personal debt at all but just as a car that is much nicer than what you would buy on your own and that you happen to loose when you quit your job.
Privately held new cars are the realm of those who can easily afford to pay up front (e.g. a large fraction of those are bought by are retirees in burn those savings as long as you can mode) and those who are at the same time in the top percentiles of both madness for cars and willingness to go into debt (these people certainly do exist, just in slightly but noticeably lower numbers than elsewhere).
Oh, and a fun anecdote further illustrating the craziness of it all: there's an organization now that sued for eligibility of all kinds of vehicles, so if my employer had such a programme I could get my next fancy bicycle through them! (But as an inner city renter, my bike ownership is limited by storage anyways, and pretty much maxed out already)
On the flipside, 1% of the car's list price as well as 0.03% for every km distance between your residence and place of employment is taxed per month. So for 20km distance, it would be 1.6% of the car's list price. That is added as income onto your monthly salary for tax calculation, and those taxes then deducted from your actual cash salary.
To readers that might think otherwise: while this certainly is a powerful setup to give Tesla a hard time in the market (if you only paid personally relative to initial cost, nothing at all for consumables, would you still want to go electric?), it clearly predates them. I have personally (and legally, I was told) burnt company fuel in "daddies car" (which he did not own) back in the 90ies.
My grandmother taught it to me this way: credit is for necessities; for everything else you save. Also: low quality products are more expensive than high quality products in the long run (because you have to replace them more often).
So as an example, if you're in a tight spot and an expensive household appliance (or your car that you need for your job) breaks, it's okay to take out a loan or financing. But if you're already good and it's just a quality of life thing (e.g. a bigger TV when you already have a working one) you save money until you can afford it.
That said, in recent decades a lot of young people have started getting financing for things like bigger TVs or mail order products. This is generally seen as a lower-class problem and has been prominently featured on TV programmes about indebted teenagers and such (a decade earlier when TV was more relevant).
I'd say lifestyle financing is a thing these days, but it's still frowned upon by most people because it's not considered sustainable and basically a form of delayed personal bankruptcy.
(A note on "lower class": the term probably has different connotations in different cultures (and even in different parts of society); I'm specifically talking about people from a low educational background who make minimum wage in low prestige jobs or rely on social welfare.)
"Unterschicht" (=lower class) is pretty similar in meaning to "trailer-park white trash" in American English.