Germans tell the rest of Europe to save, even as they rack up personal debt

German shoppers in one of the country’s famous Christmas markets. Consumer credit is on the rise.
German shoppers in one of the country’s famous Christmas markets. Consumer credit is on the rise.
Image: AP Photo / Uwe Lein
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During the financial crisis in Europe, several countries have been moaning under an inflicted “German” austerity. How then to explain that more Germans are going into debt?

The number of German citizens with debt overload has risen to 6.6 million—that’s one in 10 German adults—representing a 3% increase from last year, according to a recent report from credit agency Creditreform (pdf: German). Creditreform defines debt overload as a person’s inability to pay back debt in the foreseeable future and a lack of any other assets or credit cards. Germans boast a total debt of €218 billion ($283 billion).

The numbers are still below the high debt levels between 2005 and 2008, but experts are concerned, especially about growing debt among the elderly. As Germany’s demographics skew older, new retirees are experiencing low pensions, the result of high unemployment 10 years ago. Debt among middle-aged men is highest, although debt among women is rising as well.

Being in debt has a more negative connotation in Germany than elsewhere; the German words for debt (Schulden) and guilt (Schuld) have the same core. Many people still prefer to pay cash instead of using their credit cards. In contrast to the US, credit card debt in Germany usually is subtracted from a customer’s bank account at the end of each month; hence the possibility to even actively go into debt is somewhat limited. To get a loan in Germany is considered harder than elsewhere, and applicants have to provide a lot of securities in order to receive it.

To be able to avoid debt, Germans learn the positive value of saving shortly after they learn to walk—banks try to attract young costumers, offering accounts for children with saving incentives, free piggy banks included. A 2012 survey by Deutsche Bank found young people save almost a third of the money they have; older generations save about 11% of their income, sizable compared to other countries. (The saving rate in the US is about 4%.)

Germans save up more funds before they buy homes than people in other countries, said Michael Bretz, director of economic research at Creditreform. He also pointed out that Germany has a relative small amount of private property. Germans are just not that prepared to take risks.

“People have started to invest into long-lasting consumer products. They are leasing cars,” said Bretz. “But they are still a lot more hesitant than people in other countries.”

Clearly, the German mentality has started to change.

“Consumers see debt less critically than 20 years ago,” said Bretz. The availability of credit cards and online shopping has made customers less cautious.

According to the study, excessive consumer behavior as reason for indebtedness has increased by a third. After the recession in 2008, consumers had to play catchup and buy products they had forgone. Unemployment is still one of the main reasons for debt, although it has become less important in a stable German economy.

Germany is a country that traditionally has been living off its exports. That’s why the country wants more private consumption, said Bretz, but debt overload is a clear concern.

Another, almost genetic concern affects the Germans: Fear of inflation. Few were alive during the Weimar Republic when people dragged carts of bills through the streets and paid a million Mark for a loaf of bread.  To finance World War I, Germany suspended the convertibility of the Mark into gold. Borrowing funded the war and the rate of the Mark against the US dollar fell. Germany reacted with mass printing bank notes to buy foreign currency to be able to pay for reparations. From 1921 to 1923, inflation in the country was at its highest and people had gone back to trading goods instead of using money, which again worsened the situation.

Although personal debt has been rising this year, half of Germans surveyed still said they would only go into debt when in an emergency. But that’s a mild development in the broader, more devastating euro crisis. After all, in a separate Creditreform study, 28% of Germans still say they would never choose to go into debt at all.