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Have you ever wondered if everyone around the world takes up as much debt, has as many credit cards, student loans or consumer loans than you do?
I remember the first posts I read from US personal finance blogs, and the amount of debt people were in was mind boggling. I often thought ok, only fat people would start a diary about their weight loss, but it doesn’t mean that everyone is overweight, the same has to go for debt and PF bloggers. But then I read studies about the average amount of debt Americans carried and saw it was pretty normal to have a car loan, a student loan and a balance on several credit cards.
We do things differently in France. I don’t know if that is because our grandparents lived through WWII and are generally very cautious with money, passing on strong values of frugality and good money management, or because the system makes it hard to borrow money if you don’t have a good job.
Student loans? Very rare
A few kids in my business schools took on loans. If you check how I lived on $400 while in college, or how I graduated with $25,000 in savings, you’ll know I didn’t borrow money for college, nor did I pay for tuition during those five years.
If you can’t afford to study, you’ll get a scholarship. Public university costs roughly $2,000 a year, business school can be up to $20,000 a year and that is one of the rare occasions when students would take on a loan. All business schools have work/study agreements with major companies, like I did, the company paid my tuition and I worked for them in return, so students who take a loan are the ones who are too lazy to work want to experience the “full college life”, or take a semester abroad, and don’t realize that they can travel the world after college like I did, with the money I didn’t dump on tuition.
Sorry about the brag fest, back to the point, we almost never borrow for college. We live at home until we can afford our own place, and will shop on the curb for a sofa the neighbors threw away rather than borrow for it.
Car loans? Nope
The same goes for cars. I didn’t own a car until I was 29, and most of my friends do not own one. Outside the big cities with reliable public transportation, people have cars in their 20s, but they buy a beat up 10 year old car cash with their summer job money until they can buy something better.
I only know a couple of people who financed a car.
The credit/debit card
The vast majority of people in France own a “carte de crédit”. That means credit card, but in reality it works like a debit card with an overdraft on the account. If I go shopping with my carte de crédit, and spend €100, the amount is deducted within a couple of days from my current account. If my balance was €150, it is now €50. Another €100 purchase, and I am now in the red, at €-50.
You cannot carry a balance on your card, safe for a few that will pool all your purchases until the end of the month, at which time you get the grouped debit, you do not get the usual 3 weeks after statement to pay it off.
And you want to know what the biggest ripoff is? We get charged, around €40, a cool $50 per year, for the privilege of owning one such card. A debit card! There are 60 million French people, I’ll let you do the math…
The account overdraft
As a result of the carte de crédit, most people have an overdraft authorization on their account. Mine is at around 8% with ING and interest is calculated daily, with no minimum. That is a breath of fresh air considering my old bank was charging a minimum fee of €5 even if you were €0.20 in the red for a day.
The overdraft rates are usually lower than your credit card rates as anything over 16% is considered usury if I remember correctly.
The store cards
Only a few stores offer credit revolving cards with a high interest, usually tempting you with a 0% balance on a big first purchase. It is very rare that people apply for a store card, generally you either can afford the purchase or not.
Our “credit cards” suck
Since almost no one goes into debt and pays 19.99% APRs on their cards, we don’t get travel rewards, hotel points, cashback. Zilch. Just a yearly fee, that usually includes purchase protection and identity theft cover, period.
The loan affordability
Whenever you take a mortgage, a loan or open a line of credit, the bank checks out your income. You have to earn at least 3 times the loan repayment amount, net. If you earn €1,000, you can take a €333 mortgage. If you earn €1,000 and already pay €350 in rent, you can’t borrow anything. If you make €1,000 and have a €200 mortgage, you can take consumer loan as long as the repayment is less than €133 a month.
This criteria is very strict and limits the number of bankruptcies. It also makes it a nightmare to get a mortgage those days, with the price of real estate in Paris… Often your parents have to cosign your mortgage, at 35 it is quite the experience.
No credit scores
I did not have a credit score until I moved to the UK. There is a bad debtor file at the central bank, listing people who have gone bankrupt but that is all they check, after they checked affordability.
Our only debt is the mortgage
Because it is so complicated and not in our habits to borrow, our only debt is generally our mortgage. Again, the banks try to make back all the money they don’t make selling us credit cards and personal loans, so we have crazy fees, early repayment penalties, and very strict mortgages that make switching a pain.
We sometimes get a consumer loan on top to make house renovations, because we plan on paying that one quickly, and the couple extra points in interest is worth it for the convenience of settling the loan years before the mortgage.
As a result, we usually graduate debt free, and you don’t hear so much about debt journeys from $500,000 in the red.
Where else have you seen differences about debt and finances in general?
This post was featured on the Carnival of Wealth, Carnival for Young Adults, thank you!
I am not sure about in NZ, I don’t feel overall like we have quite as big of a debt culture, but that might just be the people I’m around. Student debt is definitely not as much of an issue here.
Does college work in a similar way to the UK?
The US not only has a culture of debt but a culture of thinking higher education nets to more capable professionals. While that is largely true for many, many professions it is outright nonsense for other: bartender, security officer, low level clerical work, manufacturing and so on. Since a college degree in the US is now on par with a high school diploma, the banks have stepped in and made debt widely available. This debt availability has spurred an increase in tuition rates and the cycle is now in place. It starts, however, with a cultural issue. Perhaps other countries aren’t (yet) subject to this issue.
Kids in high school should have personality tests to make sure they are fit for the college career they choose. It is so much money to “find yourself” and end up bartending.
Very interesting, though not surprising at all – good post as well 🙂 . I think the difference goes back to a number of different reasons. I believe in relation to education we here in the States have made it more of a business than anything else. As a result, that drives up cost and then you get the double edge sword of the belief that everyone has to go to college. In regards to other debt, we’re very consumer driven and credit is plentiful so it can easily lead to debt if you’re not someone who is committed to being wise financially and able to resist temptation. Simply put, I don’t think our culture here in the States likes to tighten its belt and thus causes the debt problem.
It is either freedom and possible bad actions or restrictions and a better average. Because I am on the wise side I would rather have the former but for the good of the whole population, the latter makes more sense.
Wow, interesting system. The strict mortgage criteria in particular caught my interest. It seems to make a lot of sense. It really is amazing how much a part of our culture debt is here in the US. There are pluses and minuses, but I think for the normal individual it’s most definitely primarily a minus.
I wish we had more freedom like you guys but it can indeed lead to abuse or early money mistakes so I guess it is worth it that the banks are so strict.
I think there’s a huge cultural issue. Apparently, the savings rate in China is around 25%. Here in the States? I think our savings rate is something like negative 25%.
It’s because in China, they’re taught to save save save. Always save for a rainy day. Here in the U.S? Good ole’ fashion consumerism! Spend like there’s no tomorrow!
The French don’t fill their pantries up with jumbo sized bags of chips and cookies so they don’t carry around the extra weight like we do. The French apparently don’t have sellers of credit on every corner either so they don’t carry around excessive consumer debt either.
If it is easy to get to we will consume it. Food or credit.
We Americans seem to be a culture of excess in every facet. I’m glad I lean toward the more European tendencies 🙂
Wow I had no idea it was like that, but seems like it keeps people in line. While we have more “freedom” to spend, I guess that comes at a price if we can’t control ourselves, which apparently we can’t.
I had no idea it was so different in France. This leads me to believe the French have a much more realistic relationship with money. I hardly know anyone my age (32) that isn’t in debt. It’s a shame we aren’t more educated in how credit works, and how other cultures manage money.
I like reading about the differences in different countries. Canada is a bit different from the US but definitely not as drastically different as France. I know a ton of people in debt, even if my immediate friend circle doesn’t have any.
The difference in tuition costs is dramatic for France compared to many other countries (Norway excluded!). It was the only “exchange” country at my school where they recommended you withdraw from our school and attend as an international student, because tuition was something like 400 euros for the semester as a Canadian. Here, tuition is now up to about $7000 per year, depending on your program (business schools also tend to be a lot more). In the US, tuition is MUCH more expenses for a lot of schools, especially if you go out of state.
Italy is about the same way on home mortgages, high downpayment required, and shorter loan duration than in North America. Acquiring new vehicles on payments I remember as being not uncommon, through a system of stamped coupons known as “cambiali”.
Yes. This is all stuff BF has told me. A few other points versus North American spending
1. If French people don’t have money, they tend not to spend it. This is probably due to not being able to access easy credit, but generally speaking the attitude is: We don’t spend what we don’t have.
2. There are good programs in place to let smart kids go to school for free based on financial hardship and so on. We have less of that here, even if it is available, it is not the way it is in France.
3. The U.S. is especially screwed because people may take home more money after taxes than the French, but paying for healthcare is a huge chunk that no one seems to factor in.
4. The U.S. again (sorry) has a horrible approach / attitude towards work in the sense that a concept like “at-will employment” exists, where an employer can fire you at any time for any reason subject to it not being about race and so on. If he doesn’t like your tie colour, he can fire you on the spot and offer no compensation or real “reason”. This is not the case in France as you well know! It takes a long time to get someone hired, and an even longer time to fire them.
I could go on and on…
Pretty strange that we have much more stable employment situation and yet credit is harder to get. But when I read all the debt stories I am thankful for the no debt upbringing.
I live in at will state. I’ve never heard of a case where people get fired for their boss not liking their tie. You said this at your blog too. 99% of employers DO NOT FIRE FOR SILLY REASONS like you assume. Most employers do not have time to fire people for silly reasons because work has got to get done so they spend time looking for good employers.
Because of at will employment I’ve found jobs easily where I live. The only time I’ve been fired at my at will state was when I showed up late too many times and my job had a tardiness rule. But I hated that job anyways so I didn’t mind. I was late 6 times each month for 2 straight years!
Also they were careful in my termination and actually I didn’t mind being fired. I didn’t think poorly of my boss because he terminated, in fact he was one of the best bosses I ever had and the nicest. I don’t think ill of my former company or my boss. It was a job I didn’t care for and I should have left on my own. It was a bad job fit.
The U.S. is not screwed. Frankly I’m tired of you hating on America. It’s one thing to point out differences between countries and it’s all right to have preferences like you have a love for all things Canadian and universal health care, but it’s like you think we are the gutter of the world.
Frankly I’m sick of that attitude. I think France is screwed because of socialism. How about that?
I apologize for that last sentence. It was spoken in haste. I don’t think France is screwed. While I don’t agree with everything in the French system, I admire French culture and consider myself a huge Francophile even though I’m not French. I even listen to French songs and watch French movies.
There are some things I don’t care about the French system such as tracking in schools. I do admire the way they stay out of debt and I think it’s a good thing that the banks are strict with loans and such. As a reader of Saver Spender’s blog, I know she came to the U.S. and had a bad experience.
Sometimes it really bugs me how she thinks that Americans are screwed. No I don’t think we’re screwed and she has many misconceptions about life in America. It seems she thinks that the U.S. is the dog of the world and that’s a shame. I’m sure if we all sat in a sewing circle we could find faults with every country in this world.
I love most of these, but there are a few issues that make debt much more difficult to avoid in the States. First, college tuition is expensive. If you go to an in-state public school, you’re probably looking at $5K per year, but if you go to a private college, it’s not unusual to see $25K-$40 per year on tuition alone. My British visiting professor said it best when he heard how much our tuition was: “no wonder there’s so much of a gap between the rich and the poor in this country. The poor can’t afford to go to a good college.” (Please don’t take this to mean that the only good schools are expensive; there’s plenty of good, more affordable options, they’re just typically not as prestigious)
Next, eligibility for student loans are calculated on your parents’ income until you’re in your mid-twenties, which means that even if you’re actually paying for it yourself, you’re likely not going to be eligible for many grants or lower interest rate loans.
The other issue is about cars. I’ve lived in Europe, and it was so dense and the public transit infrastructure was so good that I didn’t need a car. That’s not the case here in the States. Most cities have such terrible public transit options that you have no other option but to drive a car. Unfortunately, this is the norm instead of the exception.
I completely agree that we have a debt culture, but there are a few factors that make it difficult to do a side by side comparison with European models. It’s rare to meet somebody here that’s debt free because our society and ‘approved life plan’ are constructed in such a way that it’s extremely difficult to avoid debt, even if you wanted to.
Our scholarships are also calculated on your parents’ income which is bad if they are rich but don’t help you. You can still file a case to prove you don’t live with them and they don’t support you but it is more complicated.
And yes the car problem is definitely different. Almost all of our campuses are in the center of mid size towns with plenty of buses and cycle lanes. Only kids from the countryside who don’t live on campus tend to have a car.
Wow, I didn’t know the French banking and credit system was so primitive! 😉
No, really, it makes sense in a way. I think the pendulum in the US has swung pretty far in the direction of “free credit for everyone”. Is that good or bad? On the one hand, it’s a much more egalitarian doctrine to allow many the opportunity to borrow. On the other hand, it lets unsavory lenders prey on unsuspecting victims, and it can create a perpetual wealth destruction machine in the households of those who don’t carefully mind their debt.
I personally love the easy access to credit, but then again I’ve never been one to overextend myself.
I’d love to have easy credit too, but I guess if it had been too easy I may have made some bad decisions earlier on.
Pauline, this was an eye opener for me. I had no idea debt was so strictly controlled in France. For some people this is probably a good thing. For others who responsibly use debt maybe not such a good thing. From the outside looking in though it looks like a very simple system as far as requirements are concerned.
That is a double edged sword, just the way easy credit is in the US. Why we opted for one and other countries for the other I don’t know, but as a responsible borrower I wish it was easier.
This doesn’t surprise me at all. It seems like all the rest of the world really is much better at having their financial crap together, while us in the U.S. are quite gluttonish about our money and our food. It’s embarrassing, frankly, and I speak from personal experience. There just seems to be a much larger percentage of irresponsibility here, on a lot of fronts. 🙁
Probably because you have more freedom there is more abuse. We have difficult credit so we are good with debt. We have smaller sized portions of food in fast foods and supermarkets so we eat less.
I just can’t get over how affordable college is there! If it were me I’d probably stay in school forever… 🙂