I saw this story in my local paper about Germans and their aversion to credit cards which I think says a lot about the current situation in the Eurozone. Two things to take from this article. One is that Germany has the lowest home ownership rate in Europe (40%). Those with the highest: Greece, Italy, and Spain (80%), and the UK (70%). The other is that they abhor credit and credit cards are rarely used there. Cash is king. They save, we spend.
June 27, 2012, AP
BERLIN – Head to the checkout at an Ikea in Stockholm to pay for your new leather corner sofa and with the swipe of a Visa card it’s yours. Don’t try that in Berlin — that’ll be euro1,699 ($2,080) up front please.
It’s that financial culture — a deep-seated aversion to debt and an emphasis on responsibility — that makes Chancellor Angela Merkel’s hardline approach to solving the European financial crisis so popular in Germany.
The attitude shows up in all walks of life, from the daily trip to the grocery store to putting a roof over your head.
The economy is so reliant on cash for transactions small and big, a way to ensure you don’t spend more than you have, that Germany pushed hard for the euro500 note to replace its popular 1,000 mark bill when it joined the common currency.
It’s one of the largest denomination notes being produced anywhere today, worth around $600, and is even known in neighboring France as “the German note.” While even discount supermarkets in Germany happily take the euro500, very few shops in France will accept the bill.
Even though Germany is Europe’s largest economy and one of its richest per head, it is last in home ownership with just over 40 percent. That compares to some 80 percent in troubled EU nations like Greece, Italy and Spain, and around 70 percent in Britain and the U.S., where owning your own home is part of the “American Dream.”
Germans tend to be instinctively averse to taking out a mortgage. And lenders often demand a 20 percent down payment on a house or substantial collateral. So a culture has sprung up of just renting and holding on to cash.
When mortgage debt shot up by more than 20 percent in the 27-nation European Union between 1998 and 2010 — and more than 35 percent in Britain and 60 percent in Ireland — Germany was the only EU nation to see it fall, with a drop of 5.4 percent in that time period, according to the European Mortgage Federation. …
Odd – I was in Germany in March and everywhere I went accepted my MasterCard…
Gotta call the AP on this one: bovine excrement. I’ve lived in Germany since the early 1990s and while many do deal with cash, it’s partially because most individual merchants – not chains – will give you the credit card fee as a discount if you pay in cash. The aversion is to paying what amounts to a parasitic tax for the convenience of the consumer: the Visa/MasterCard/Amex fees come from the retailer’s profit margins, which are thin enough after you get done with all the costs.
That’s really it. Cost aversion, not some sort of savings fetish.
Now, German home ownership levels: that’s because real estate is outrageously expensive over here. Has to do with collusion between those doing zoning and the construction companies, who have decided that it is vastly better for them to be building relatively few expensive buildings rather than lots of cheaper ones. They took the basic life cycle of houses – 70 years with one major and three minor rebuildings – and re-wrote the construction code such that the consumers pay for a house designed to survive 140 years, double the usual construction codes. The result is that you have lots and lots of ugly houses built during reconstruction in the 1950s that no one really wants, but only a few can afford to buy and tear down. Depreciation schedules on houses are 100 years; apartment depreciation is a tad faster at 50 years to take account wear and tear. Given the general reluctance – it takes up to 5 years to get something rezoned for residential use – of zoning authorities to create new residential districts, land for residential use is significantly overpriced and can reach 50% of total construction costs for really choice locations.
Add to this the decision back in the 1950s to reconstruct as quickly as possible, with government agencies building large-scale apartment complexes in order to keep wages low by subsidizing rentals for their employees, it shouldn’t be surprising that German owner occupancy rates are relatively low. Of course, if folks in the US did proper accounting (like creating proper renovation reserves and eliminating the subsidy of interest rate tax deductions), you’d see that owning an owner-occupied dwelling can be very expensive indeed. Anyone viewing their owner-occupied house as an “investment” is foolish: it is a speculative purchase, not an investment (doesn’t generate a cash flow, after all!) if you are going to rely on house prices increasing over time to generate a profit.
Oh, and 20% is the minimum, not an average. Want to lock in 30 years at a very low rate? Put 40% down.
Lot of folks give “Bausparverträge” or “Construction savings account” to godchildren or nephews/nieces when they are born. These are special savings accounts to get that down payment together, and giving them one worth, say, €1000 at birth means that when they hit 25, they’ve got a good start (25 years of interest compounds nicely, even if the interest is fairly low). Germans love to buy houses as a sign of financial success and many place great value of owning their own house, just like in the US. It’s just that instead of going “Mortgages gone wild”, the Germans are just a tad more … sensible.
:-)
gLAD TO SEE SOMEOONE ACTUALLY DID SOME HOMEWORK BEFORE REPORTING A “NEWS” STORY