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Germany’s Impulse To Save

Sparen, or 'to save' in Germany, spelled out in blocks next to a piggy bank and a tape measure.
photo by Marco Verch

Germans and Americans, on average, have very different relationships with money. If you need proof, consider a successful, years-long advertising campaign from an electronics retailer in Germany: “Thriftiness is sexy.”

Americans like getting a good deal, of course – just ask any extreme couponer. But in general, in the U.S. getting a deal means buying things at cheaper prices so that the shopper can buy even more things. Germany, on the other hand, has a cultural obsession with saving. The average German saves about 10% of his or her disposable income, roughly double the rate in the United States. And the difference starts young. On Oct. 31 when American kids are trick-or-treating, German kids are often getting toys or balloons from local banks in honor of World Savings Day. This cultural divide can make the behavior of one group of citizens look extremely odd to the other.

Last year Robert Muschalla, an economic historian, curated an exhibit at the German Historical Museum in Berlin called “Saving – History of a German Virtue.” Muschalla told The Guardian, “In Germany everyone takes it for granted that they should save, both privately and on a state level.” It is even baked into the language: In German, the words for “guilt” and “debt” are the same. The exhibit demonstrated that this attitude goes back at least as far as Germany’s unification in 1871. Historically Germans have associated saving not only with personal virtue, but with patriotism.

The currency crisis of the 1920s likely fueled German insecurities about money. An era of hyperinflation rendered stacks of cash worthless, sometimes overnight. At the same time, the experience of having their savings wiped out – in some cases twice, after both World Wars – did nothing to discourage individual German saving habits. In general the German savings rate changes very little over time, regardless of economic conditions. This suggests that saving is a deeply ingrained cultural value, rather than simply an economic strategy.

Why such devotion to saving? Muschalla’s thesis is that the trend began as a mechanism of social control. In the early days of the Industrial Revolution, encouraging workers to save their earnings meant a workforce less likely to revolt. The exhibit cited an 1865 account that noted the savings deposit was seen as “a dam against communist temptations and revolutionary thought, which can arise in those who have nothing to lose.” These habits have since been reinforced by political impulses for both good and evil. In the late 19th century, German municipal authorities regularly used local savings banks to fund infrastructure projects. In the early 20th, rising currents of anti-Semitism bolstered the idea that lending or investing was anti-German behavior. After decades of reinforcement, many Germans today take for granted that saving is not only wise, but moral.

Germany’s cultural attitudes toward money naturally shape the country’s monetary policy. Reuters recently reported that Germany is on track to run the world’s largest surplus for the fourth year in a row. This might be fine if the country operated in isolation. But Germany occupies an important position in the economic makeup of the European Union, as well as in the global economy. This means that German attitudes affect savers and spenders far beyond the country’s borders.

As Greece’s economic crisis became acute several years ago, some observers criticized Germany for insisting on harsh austerity measures for the struggling eurozone participant. Germany pushed for spending cuts in other struggling southern European nations, too. The concept of debt forgiveness for foreign creditors has long been a political nonstarter in Germany. In what would seem an odd reversal to most American observers, German voters tend to enthusiastically support politicians who make financial discipline and austerity a foundation of their platform, rather than those who promise tax cuts or free spending.

In today’s economic environment, sources as diverse as the European Union’s executive body, the International Monetary Fund and U.S. President Donald Trump have publicly criticized Berlin’s tight-fisted approach to monetary policy. The main complaint is that Germany has done too little to stimulate growth, which would provide a boost to a sluggish global economy. This spring, Poul Thomsen, the head of the IMF’s European department, said the country had fiscal space to increase spending and cut taxes. Olaf Scholz, Germany’s finance minister, responded that Germany was already doing a great deal and that Berlin would stick to its policy of balancing its federal budget. “We have already done what everybody asked of us,” Scholz said.

The European Central Bank is pushing hard to stimulate Europe’s economy these days. The bank recently announced a sweeping package of bond purchases and cut a key interest rate in an effort to protect the unsteady eurozone from global trade tensions. ECB President Mario Draghi also actively called on Germany and other financially strong EU members to adopt expansionary fiscal policies. Germany isn’t heeding this call or taking advantage of these measures, however. On the contrary, it is criticizing the central bank. Hans-Walter Peters, president of the Association of German Banks, recently said, “The ECB recalls a motorist who continues to increase speed in a dead end.”

Germany has been offering bonds with negative yields since 2014, and recently it sold its first 30-year bonds with negative yields. In other words, Germany’s entire yield curve is now below 0%. This means that Germany could borrow major sums of money and essentially get paid to do so. But Berlin is not borrowing in a major way, despite the fact that Germany could benefit from increased spending on infrastructure projects and offering additional employment opportunities to its people. The political and cultural impetus against borrowing is, evidently, too strong.

All of us have blind spots when it comes to financial decision-making. Sometimes those blind spots are cultural, rather than individual. To an American observer, Germany’s mania for saving may be inexplicable – but evidence suggests that it is not going away, regardless of outside pressures to spend.

Managing Vice President Paul Jacobs, of our Atlanta office, is among the authors of our firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. He wrote Chapter 12, "Retirement Plans"; Chapter 15, "Investment Approaches And Philosophy"; and Chapter 19, "A Second Act: Starting A New Venture." He also contributed to the firm’s book The High Achiever’s Guide To Wealth.

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