Germans Save for a Rainy Day

Some are saving up for a house, a new car or an expensive vacation. Others are keeping the piggy bank stocked out of fear of job loss or worries over a lengthy illness. The motives may vary, but the effect is the same: Germans are saving more money than ever before.

A recent study in conjunction with the World Savings Day on Oct. 30 shows that the average German puts aside 10.5 percent of income for a rainy day. That's a 4.5 percent increase in savings from the previous year. In real terms that equates to about €162 billion.

But compared to years past, Germans are not primarily saving up for future purchases, but rather because they are uncertain about the ability of the state's social system to support them in old age.

According to Dietrich Hoppenstedt, president of Germany's Sparkassen savings banks, the trend of saving more can be at least partially explained by the news about the looming pensions crisis. "People in Germany have understood what the situation is," he says. "They know that they have to take on the responsibility of planning for their future financial security. And they've understood that they can't count on the state pension system if they want to maintain their standard of living."

Wary of stock market

Economic experts also attribute the trend towards greater savings to negative experiences resulting from stock market investments. Many first time investors who lost money on much-hyped flops such as the Deutsche Telekom privatization, seem to live up to the proverb "once bitten, twice shy." Cautious consumers are keeping their hands off the stock market, preferring the safety of an old-fashioned savings account.

Thomas Fusshöller, chief economist of Postbank (savings bank associated with the German Post) says Germans are also saving out of a general sense of insecurity due to the overall economic downturn. "People's disposable income barely increased in the past year, nor has it increased much in the current year. Net incomes have even gone down. The caution that people are exhibiting is understandable, especially if you add to that the back and forth over taxes, subsidies, and the reform of the social system -- of course that heightens insecurities."

Despite this, Fusshöller is optimistic that consumer spending will increase in 2004. "The planned tax breaks should add to incomes, and I think then we'll see more people spending money again."

Saving across the board

Germans also set themselves apart from their EU counterparts in saving across all age levels, with people in their 40's and 50's typically saving the most. In contrast, Britain's National Consumer Council (NCC) reports that young adults in the UK are too concerned with the cost of living to save for their retirement. A survey by the NCC showed that only one in three people under 30 are setting money aside for their retirement, and that 55 percent of people in all age groups felt they were not saving enough for old age.

And looking further afield, even Japan's famously high savings rate has dropped below that of France and Germany, and is in danger now of falling close to the low rate typically seen in the United States. In the past, many Japanese had a higher savings rate than their Western counterparts, but unemployment and wage cuts mean there's now less money to put aside.

Mentality matters

And while the same can be said for Germany, the difference it seems, is in the mentality. In Japan, saving money is seen as a virtue, but one that can be sacrificed when economic times get tough. In Germany, it's conservatism and pessimism that drive savings -- feelings that are only reinforced when the chips are down.