However, this isn’t as great as it sounds. While the European model for healthcare and education is better, their pension schemes are arguably a much worse deal than what Americans can have.
In Europe, you’re basically paying the government to take your money and invest it in much too conservative, in fact, negative-yielding! bonds right now due to pension fund mandates.
You can’t take the proper amount of risk given your age (in your 20s-40s you should be almost fully allocated to stocks) because the pension fund needs to constantly be paying out money to old people—they can’t risk huge drawdowns.
There’s a surprisingly large amount of middle class Americans who will retire millionaires just because they are able to save for their pension privately and take the proper amount of risk for their age (eg. Target date funds).
Meanwhile, in Europe, governments shelter people from the harsh realities of how financial markets work, but you have to hope and pray that enough people are born in the coming decades to make up for the conservative pension mandates. And you have to pray that the government allows you to retire sometime before you die (in the nordics, retirement ages are constantly being pushed back and pension benefits are shrinking...due to said demographics).
I predict every country will eventually move to a hybrid private/public pension model like the US over the next 40 years. So you'll have to start caring eventually.
I'm not sure pensions exist in the US beyond a few public sector ones. The US model is entirely private at this point for all intents and purposes.
Also keep in mind that only about 55% of the US population owns any stock (including retirement accounts) [0], so (IMO, not an economist) the US is most likely looking at a retirement crisis in the coming decades.
[0] https://news.gallup.com/poll/266807/percentage-americans-own...
This is intended to be supplemented with private investments via 401k & IRAs, which are actually relatively new programs (created in the late-1970s, but nobody even talked much about them until the 90s).
So while most millennials understand they need to be saving privately in these vehicles (r/personalfinance has 15 million members), there's a huge forgotten generation in the middle who slipped through the cracks between the transition from industrial-era corporate pensions to personal saving.
These are the folks who will unfortunately bear the brunt of the retirement crisis, having to get by only on Social security.
This is a myth. People struggle on state pensions throughout Europe, but for some reason young Americans idealize everything that comes out of Europe.
In Germany(a country of 80 mil), the average pension is $1000 once you get to 65. In France it's not much more. The social security in the US beats that, plus you can usually afford a private pension, because the government doesn't take 50% of your paychecks.
I personally know someone in Austria that worked all his life for the railroad, then he got sicker and sicker, but the state wouldn't give him a disability pension. He could barely work sitting all day. Then he got disability at around age 60, but he needed money so much that he had to collect scrap metal to make ends meet. Very sick, after 60 years old, collecting metal. This is just an anecdote...I know, but still.
In France, the average pension is 1393€ (~ $1574) [1]
Also the retirees purchasing power is higher than the working population [2]
Don't get me wrong, there are still too many retirees with too little money in France. But on average, the retirees are doing OK compared to the rest of the population.
[1] https://cleerly.fr/retraite/retraite-moyenne
[2] https://www.lefigaro.fr/retraite/les-retraites-ont-un-niveau...
Before you ask, healthcare is free for retirees.
This seems like a serious bug in the system, doesn't it? Why would old people retire as millionaries while young people struggle working long hours and can barely save anything?
The fact that young people struggle really doesn't have much to do with this.
The problem is that housing costs rise to suck every spare penny of income from pretty much everyone so very few people have spare money to put into those isas.
European governments see the demographic timebomb coming, so they massively incentivize their citizens to invest in a primary residence, treating it as forced savings. This inflates local real estate values to ridiculous levels, especially while interest rates are low.
However, incentivizing your citizens to take leveraged bets (big mortgages) on a single piece of real estate is...not great.
This means the investment portfolio of the average European citizen is ONE specific apartment (zero diversification), and negative yielding sovereign bonds (via government pension funds).
Since most European mortgages are not fixed rate, it will be interesting to see what happens as interest rates start rising in Europe.
While the bonds will start paying better interest, that mortgage exposure might start to wreak havoc on the average citizens finances...
It's the second time I see this on HN. However, the reality seems more contrasted. From [1]:
"A striking feature of the credit market in the euro area is the very large heterogeneity across countries in the granting of fixed versus adjustable rate mortgages. Fixed rate mortgages (FRMs) are dominant in Belgium, France, Germany and the Netherlands, while adjustable rate mortgages (ARMs) are prevailing in Austria, Greece, Italy, Portugal and Spain."
For numbers there are some graphics around p.19
[1] https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2322~0ed0879d...
Something I didn't realise until recently was in the US it's normal to have a 30 year mortgage with a fixed rate from the start, rather than a fixed rate for a few years and then either a variable rate or requiring a remortgage. My understanding is that most mortgages in the Netherlands tend to be 5-10 years fixed rather than lifetime.
In the UK I feel there's a lot of distrust of stock markets amongst normal people, partly because the FTSE doesn't grow (back in 2000 it was about 7,000, today it's about 7,500), and that's the one reported on the normal news. There's no widely reported "FTSE dividend reinvested" measure.
Add in the mortgage mess from annuity mortgages where people were sold the idea they could have their cake and eat it too, ended up without enough money to repay their mortgage at the end. Throw in the pension collapse of Equitable Life, the pension fraud from Maxwell, the stock "boom" in the 90s where normal people bought shares, driven by the selloff of nationalised industries, and then seeing those shares vanish in 2000 and never really recovering and you get a general distrust of private hands managing money, and a preference to trust the government.
This meant people put their money into houses starting in the late 90s, which combined with increasing household income as new families became dual-income led to increasing house prices and a snowball effect. Even 2008 didn't really impact, as it was mainly sold as a US problem which had an effect on the UK, but not a major one.
The UK government (any colour) will do anything to keep house prices growing as that's how you get votes.
Makes complete sense given interest rates are zero right now. However, if the ECB keeps getting surprised by inflation (like the Fed is in the US), interest rates may have to be start rising in fast, dramatic fashion.
You can be in the top 1% by income in London and still simply not be able to afford a small family home.
Home equity wealth inequality in crippling.
Nor can we assume that the exceptional stock market returns of the past 15 years will be repeated, which means we need to save more for the same result.
I feel great pressure to earn a high wage in order to save a lot of it into a pension. This feel like a matter of survival.
This was of course obvious already a while back, so the government decided to introduce additional ways to encourage saving for retirement (by giving tax discounts). However, they also managed to screw this up, because only contracts from certain insurance companies apply for these tax discounts. And these contracts have such a high management fee, that the real return of those constructs is negative.
Yet there's a surprisingly large amount of middle class Americans who have no retirement savings; either due to YOLO, or medical emergencies, or misunderstanding how to invest towards retirements.
I would love to see some data around this. Because what I keep hearing (being in India) from the usual suspect sources is mostly gloom and doom[1]
Additionally, only about 1% of those millionaires are under 35. (This is a point that gets lost in the debate about inequality, in my view; most wealthy people are old for what I think are extremely obvious reasons.)
https://spendmenot.com/blog/what-percentage-of-americans-are...
In the UK almost everyone will have been moved over to a "defined contribution" pension whose value is determined by the stock market, usually in the form of a "stakeholder pension".
I don't "do" the stock market but I do have such a pension. And every few months sweep spare cash out of my current account into an index fund. Effectively I pay people to worry about this stuff on my behalf.
People who retired more than about 10 years ago are far more likely to have "defined benefit" pensions whose value is independent of the stock market.
For most people outside the very niche finance and tech investment bubbles stocks are largely understood as a form of gambling and managed funds as a high yield alternative to a savings account with a small risk of losing money (but this requires some disposable income so again this is somewhat self-selecting).
The ordinary Hans Wurst (German Joe Blow) just follows the economy section of the news for a general feeling of if things are going good or bad because line goes down means prices go up and they probably won't get a raise.
The lesson most voters take away from this seems to be that leftism is just false advertising and if you vote for leftists you just get the same politics but more dishonest, not that the "leftists" they keep voting for aren't actually interested in leftist politics (though I can see why Die Linke might be unappealing as they're a headache even if you see them as the only viable option).
You will get your defined benefit pension, but how much you can buy with it is variable. And it is going to be less than you think. That is the only way the equation balances with lower economic growth (especially due to lower population growth) and increased competition for resources from the other 7B people in the world.
They have so many strikes they need to organise them to make sure they don't overlap each other
Shares (and all their financial derivatives) are a good hedge for profitable limited companies, because they either go up in value (yay! profit!) or down in value (yay! tax deductable loss rolled over to next year!). So long as the company is otherwise making a profit, shares are actually pretty hard to lose out on.
Also pensions. Most pensions are backed by index funds which are generally related somehow to stocks and shares. If you need to manage a pension fund, you have to pay at least vague attention to the stock market.
I once worked at a company which used a money market fund for its cash. That gave them a slightly better return than a bank account. In the end, not sufficiently better to be worth bothering with.
You can get whatever risk profile you want from the stock market in return for less yield. If you can accept two-nines certainty that you won't lose half your money in six months, any broad index fund will do. That would be acceptable for a lot of "modest businesses" which find themselves with "6-7 figures cash reserves". If you need better, you can do fancy things with options, or put a fraction of the money in the bank and invest the rest.
(I am a financial professional, but not in this field, and this is not financial advice)
The US stock market has been ridiculously pumped from the last decade-plus of money printing, I wonder how many people think that's normal.
So if your business is doing well you can avoid putting all your eggs in one basket by investing some cash personally outside the business. And the easiest way is to jus put it into an index fund and then concentrate on your business.
By all means plow a lot of it back into the business, but there’s good reason to pull some out over time as well.
Instead, invest a regular amount of money monthly into ETFs. Those are relatively low-risk, but should still yield significant returns over the course of decades.
It's true that most people (at least in Germany) don't trust the stock market. The problem is that your wealth is being eaten up by inflation and interests on savings are low or even negative. You will lose money. In addition, Germany's mandatory pension funds are in a bad shape and most private insurances (e.g. Riester) are not worth it.
The situation is not the same as in my parents' generation and unfortunately, a lot of people are not realising that.
In Switzerland, I have to pay ~0.1% stamp duty on every purchase and sale of stocks and ETFs (in a Swiss broker). The UK has a 0.5% stamp duty on stocks. The idea for these brokers to compete on price doesn't make much sense at that point. It's "fine" that the normal fund has a 0.5-1% fee. There's some movement here, but only if you care to engage outside your existing bank (IBKR in the UK, Avanza++ in Scandinavia, Degiro in Europe in general).
Investing is good, and---as has been said---pensions are often invested in the stock market, whether you know it or not. But you just don't talk about it, because being active is costly. In Sweden, the defined contributions are auto-invested in a balanced fund unless you engage. There's something to be said about having sane defaults when you create a system.
As for the US, I'm not sure Robinhood was a step in the right direction. We should encourage people to own companies, not try to profit from Brownian motion. But that's perhaps a topic for another discussion.
Finally, I'm heavily into the stock market. I have several accounts across the world (though not really by design). I'm fascinated about this oddity that I can buy more food in the future just by having a different piece of paper, compared to someone else. But I also spend a stupid amount of time trying to find ways to reduce cost of investments. My guess is that most people don't, and it's kind-of the first step for a European that's paying >1% in fund fees. Or who don't even know how much they're paying.
Some would say this is typical behaviour before a crash. Business people become folk heroes (Musk) and the news is all about stocks and macroeconomics.
When the media started pushing GME, people went and bought GME. When the media started pushing btc, people went and bought btc.
Stocks aren't being encouraged, therefore most people don't do it and instead cluelessly dismiss it mostly as gambling. Same goes for cryptos.
Right until the media pushes it, people buy into it, rich people sell causing prices to crash, and the cycle of cluelessness repeats.
Sometimes you're forced to (when an investment is tied into a basic necessity, like a house), but you're always going to be at a disadvantage.
> investment is tied into a basic necessity, like a house
? What does this refer to?
It’s not 100% consumption, but it’s almost surely we’ll over 50% consumption and yet people get confused by the fact that a slice of it is forced savings and a sliver of it is an investment and they focus on these latter two more than is appropriate and in so doing are prone to less rational decisions than if they thought of it as mostly consumption IMO.
Unfortunately, because a bunch of political factors, they endlessly balloon in price.
I live in a nice part of my city. My house is 100 years old, has terrible insulation, very old retrofit wiring, and needs constant maintenance to stave off decline. The house, with all the upgrades over the years, is likely worth about what it was when built. The land underneath it is a lot more valuable than it was 100, or even 25, years ago.
The fundamental problem here is not one of economics, but of politics. You can't live in a stable, dignified manner without paying to be part of a state-run monopoly (land ownership), so everybody who can does, so land titles (note the word) become absurdly expensive.
There is no real connection between land and living space - multiple story housing exists, and if housing was built to a reasonable density, there's more than enough land for everybody to live in whatever size house they could afford to build.
Side note 1: There are places where you can (sometimes only can) lease the land for 99 years. This has the predictable effect in terms of willingness to build/improve the land, especially as the lease term is drawing to an end.
Side note 2: these discussions almost inevitably summon the proponents of land-value-tax to encourage denser use of valuable land. They’ll be along shortly, I’m sure.
All land does not have the same or even similar perceived utility to all people. Some land is has much more demand relative to supply than other land.
Fact is, as soon as you've got a meaningful amount of wealth, you're going to want to invest it so you can either get income from it or grow the principal. It could be in a home, multiple properties, or the stock market.
> People I have known in the past (old people) didn't do stock market either. They all seem to have lived a normal life (decent jobs, decent house, decent family). Nothing extravagant but they got enough money to be "happy" in life.
No offense but you're going to have a tough time comparing to a boomer in terms of wealth generation and building if you're a millenial. I know people who got houses handed to them for very cheap 30-40 years ago, and those houses are worth tremendous amounts of money now. On top of that they have good pensions and insurance from a long time ago. Or they have a rental contract where they're paying 1/3rd of their neighbors so their expenses are low.
There's a great income and wealth divide in Europe between the haves and the have nots, and the haves are very good at keeping their wealth and passing it down to their heirs. Meanwhile in most European countries, punitive taxation makes it extremely difficult to move up in social class, even from middle class to upper middle class.
This is not true. Several of the highest taxed countries in Europe also have the best social mobility in the OECD: https://www.oecd.org/els/soc/1-5%20generations.png
It might be the case that Germany is particularly rigid, but that is not transferable to most of Europe and certainly can't be attributed to taxes.
Low inheritance taxes are actually a great predictor for maintaining social inequality over generations. If you wanted to reduce social inequality you'd instead want to drastically lower VAT (which disproportionately affects poorer people), adjust income taxes to lower the tax burden on lower incomes and raise it on higher incomes, and drastically raise taxes on income from capital (rather than labor). This isn't even simply an opinion, this is scientific consensus.
If you think the "wealth of a nation" is measured by the luxury of a few rather than the poverty of the many, you might as well just revert to feudalism.
Do you have one for mean income to upper class by chance? Even +1 Std Deviation move would be significant in terms of wealth building.
Maybe less so in the USA? Not sure.
But a lot of computer folks have spare money at the moment, and in that situation you have a few options: consume more, keep it in a savings account, or invest. And some significant proportion choose invest.
Keep it in a savings account is a common option, but quite a bad idea.
Probably the majority of people who invest do so in property, considering it safer than stocks (which I disagree with, although there are other reasons to like property).
This may be changing a bit in recent years, because access is easier now. In Sydney I see adverts for stock brokers at the bus station.
Seems like some gamblers have switched to the stock market to get their fix too.
It could also be that you prioritize investing money into a house instead?
Stocks are considered "risky", but if you have a 10+ years timeframe, an index fund is not risky at all.
I also have 75% of acquaintances that don't do stock market or crypto. And that's the reason why my savings are outperforming all of them.
In the US, the majority of adults are invested in the markets (https://news.gallup.com/poll/266807/percentage-americans-own...), whereas in Europe the number of people invested has historically been lower (https://www.ft.com/content/31c4d453-498e-4cc2-b14f-d7e8b17b9...).
This makes sense when you think about it - in the past you would have built habits and understanding from relatives and your community (e.g. "Don't invest in stocks that's gambling and they always crash!"), whereas since the Internet came along people have more access to data and perspectives from more places.
All of the above said, the last few years, and especially since the lockdowns, the behaviour in the markets has been really alarming. The FT.com link above touches on this, but the rush into [stocks/cryptocurrencies/leveraged funds/options] is something I've never seen before in my lifetime. I don't think the world has ever seen anything like this level of amplified speculation. Bitcoin, Leveraged ETFs, and Options didn't exist in the 1920's. The Netherlands had futures contracts towards the end of Tulipmania, but I haven't seen anything to say that they were leveraged.
In the late 1990's it was clear and readily apparent to everyone that the Internet was a massively important step forward. We agreed on that. It wasn't a controversial or widely disputed viewpoint. The market still imploded because of the sheer amount of rampant speculation, so to think something worse won't happen to a multi-trillion dollar market based on a technology many people think only has value for running Ponzi schemes seems to be pretty irrational.
To top it off, the wall of hype seems impenetrable at this stage ("have fun staying poor!" etc), so it remains to be seen what happens when the plates stop spinning this time.
tldr; Your grandparents might be proven right after all.
In the 1990s it wasn't clear to everyone that the internet was a massively important step forward. You were younger and probably part of the technically-savvy, forward-looking generation that could clearly see the internet being massively important in future. However, *many* people in the older demographic lacked this insight and didn't fully embrace the internet until the mid to late 2000's. I think we'll see the same thing play out with crypto. Writing everything off in the sector as being ponzi is especially flippant.
Every dollar you get but didn’t work for was a dollar that somebody else worked for but didn’t get. The stock market is full of transactions which yields profits for the rich while leaving workers at a loss by means of lower benefits. I refuse to participate and become a class traitor.
I’ve never worked in an industry which tries to push stocks onto you as much as software development. They keep paying me out options, giving me stock plans, etc. My strategy is to get sell as soon as I’m able, and transfer the money to a savings account in my local credit union. Don’t let them get away with not giving me my money, but don’t let them dictate how I keep my savings.
There is loads of counterexamples for this though. Especially in older countries in Europe it can become very apparent.
Also having wealth (trough inheritance) enables one both more opportunities and reduces risk. A poor person taking a "gamble" on a business (if they can start one that doesn't require long rampup or capital) will struggle to feed themselves if it fails. A rich person (if not just focused on inherited assets) can try multiple times and is often encouraged to because of this but also trough exposure to fundamentals from family.
Off-topic from the thrust of this conversation, but I always considered the above extremally risky. If your company goes tits-up, you loose your job and your savings.
This happened to a lot of people during the dot-com crash of 2000. (Unless you have a high risk tolerance, you will want to diversify much more.)
Employment is by definition exploitative because a capitalist system requires the owner to derive profits from labor, i.e. pay workers only a part of the value they generate. This isn't a value judgment, this is a matter of definitions: the capitalist mode of production is by definition exploitative because avoiding exploitation would steer the owner towards bankruptcy and thus kill the entire business.
The only solution to avoid this contradiction is to not have a separation between ownership and work, to abolish the capitalist class, i.e. ownership of a business is granted by working for that business, with all the rights and responsibilities ownership implies. However the ultimate ideological goal is usually (similar to how Free Software doesn't want to control copyright but abolish ownership of software) to abolish the notion of ownership or even businesses as distinct entities, much like discrete ownership of land was a nonsensical concept before enclosure (i.e. it was "your land" because you used it and the community was okay with you using it).
I think the most frequent misunderstanding of communism comes from trying to fabricate communist structures within capitalist power dynamics. Most of the prominent "communist experiments" had very little to do with actual communism because they were built around the assumption that they were building a foundation for communism to happen later rather than directly building communism in the here and now (hence the Eastern Bloc phrase "real socialism" as a euphemism for authoritarian governments with mandatory labor and limited democratic instruments, none of which is compatible with the definition of communism).
The thing most people seem to forget is that the goal of "abolishing the capitalist class" is to also abolish the working class as a subjugated dependent group because it is only a meaningful concept when contrasted with an owning class. The Soviet Union failed terribly at this by replacing the capitalist class with bureaucrats, effectively still maintaining a distinct working class and hoping he bureaucracy would magically "wither away" eventually while doing nothing to make that happen. They also tend to forget that the distinction between capitalist and worker is purely about ownership and there are many overlapping hierarchies of power, and owner vs worker is merely one of them (although one of the most important ones).
Of course owning these stocks gives me nothing over their monitory value, so having them benefits me nothing over having an interest account with equal interest rate. So I just look at them as a bonus pay with additional headaches (moving money out of the stock market is harder then to cash in a normal check). And as while the power imbalance exists between workers and bosses, I would rather just get paid in regular salaries without the extra complexities.
At most these people do stocks like a person who returns their compost to the city does public gardening.