North American versus European Approaches to Debt and Saving
Pauline wrote a great post called: The French Approach to Debt, and being with someone who is from France (and who has worked all over Europe) who has lived in the U.S. with me as well as in Canada for over 10 years now, I have a LOT of insight into this subject.
Pauline’s points in brief:
- Student loans are rare
- No car loans because they use public transportation
- No credit cards because their ‘credit card’ is really a debit card
- Few store credit cards and very little access to free, easy credit
- Loans are rarely given out and are given under very strict rules
- Only debt is their mortgage
Other points I want to add to her post are the following:
STUDENT LOANS ARE RARE IN FRANCE BECAUSE…
1. THEY ARE REALISTIC ABOUT THEIR ABILITIES AND CAPABILITIES
In North America, everyone expects everyone to get a college degree, no ifs, ands or buts about it.
This causes a lot of problems because it has spawned a whole industry of what I like to call fake colleges that basically take your money and give you very little (sometimes negative) value in return.
At the end, you graduate with student debt, and with a piece of paper not even worth the ink it is printed on in terms of having any value in the job market.
As a result of this attitude, people here in North America are willing to invest in their education at any cost even if it kills them financially.
Former Secretary of Education (in the U.S.) states that only 150 of 3500 U.S. colleges are worth the investment.
This is going to sound harsh but it is unrealistic to expect that everyone will be able to obtain a college degree worth the investment, and the French recognize this more than we do.
In North America, no one wants to believe or accept that they cannot make it or aren’t smart enough — in fact that’s the backbone of being a North American, that you don’t need to have connections or money to become successful and rich, however in the same vein, it is also to our detriment.
The French seem to have less of a hang-up than we do about not being smart or having to prove that they are smart by waving around a piece of paper (no matter how useless), and accept it if that’s the truth because that’s just the way their culture and society works.
2. THEY ARE FILTERED OUT AT AN EARLY AGE BASED ON APTITUDE
At a young age (I believe 15 was the age given to me), they filter out children who do not seem to have the inclination or aptitude to go on to the higher education, and we know quite a few people who were basically streamed into trade schools or were told they were to no longer continue their high school studies because their marks from their previous years were far too low to warrant the government paying for them to go to school for another year.
If you manage to prove to the authorities that you have the brains to stay in school and reach a higher level of education, they put in more filters as you go up where you have to compete with other students to obtain what they call ‘prep schools’ to prepare to enter the best colleges in France which are typically business or engineering schools.
Those schools are also ranked, and depending on what school you get, it determines your entire career path and the rankings change based on government approvals from year to year.
One year, your school could be considered a first-rank school but if you fail to update and modernize your teaching practices, you could drop to second-rank or third-rank.
As an example, someone who went to L’École Polytechnique in France for engineering, has the pick of any job in any industry that they want, and generally speaking they end up at the uppermost echelons of executives in France.
That is not to say by any stretch of the imagination that just because they went to L’École Polytechnique that they’re fit for the job (they could truly suck at it), but that is the way it works in France.
On the rare occasion you will meet someone who did not go to THE BEST school, but who still made it fairly high up in the ranks, but you know immediately based on their degree that he or she will never become the boss no matter how hard they work.
This is both fair and unfair, but it’s how it works.
As a result, there are still colleges in France where you can pay and obtain a degree, but they are not as prevalent as in North America, and everyone in France knows by the name of the school that you paid for the degree.
FRENCH PEOPLE DON’T SPEND WHAT THEY DO NOT HAVE
Generally speaking as Pauline pointed out, French people do not spend what they don’t have because they can’t, but also she was too modest in not pointing out that it is also not part of their culture.
They do not spend what they do not have. This is something I’ve really noticed as a prevalent attitude.
If you do not have enough money to buy meat, you just don’t buy any meat and turn vegetarian. Simple as that.
No money for wine? You don’t drink the good stuff, you drink decent stuff at 10 EUR a bottle.
They do not consider those things as essentials because they see the priority is that they are fed, and anything above being fed and full or with good one is an extra bonus.
That’s a rather extreme example, but quite true because they are (as true to form) picky about what kind of food they eat, and would rather not eat meat 90% of the time than to eat flavourless meat 100% of the time, as in meat that is not well-raised and tasty.
THE FRENCH DO NOT EXPECT TO BE GIVEN ANYTHING WITHOUT WORKING FOR IT
When I was about to turn 16, the biggest fuss in my age group was obtaining that coveted driver’s license, and then being able to drive a car (your parents’ car or one that they buy / give to you) to get around and be independent.
Sixteen-year old French children do not have this expectation of getting a license, then a car and being ‘free’ from having to be chauffeured around by their parents.
In many ways they are already ‘free’ and independent, probably having gone to school by metro on their own at a very young age, and never having relied on their parents to bring them anywhere to begin with, so they don’t have that hang-up.
I will acknowledge however that public transportation is much better in France than in North America, so a lot of people don’t even feel the need for a car (what a hassle!), whereas in North America if you don’t have a car, you’re kind of screwed because everyone and everything is so spread out.
Plus, their cars and roads in Europe are uber tiny. It’s the reason why they come to North America and marvel at our highways and huge honkin’ gas-guzzlers.
Basically, no one expects to drive a car or own a home at any age until they are able to afford one.
THERE IS LESS OF A NEED TO SHOW OFF
Compared to North America and in China, there’s less of a need to show off that you’re rich and successful.
If you were rich and successful, they reason, you don’t need to even prove that you are and therefore wouldn’t bother.
They even find it a bit disdainful to be a showoff, and generally don’t feel the need to have clothing or things in excess the way we do.
They like quality over quantity at all social classes, and although they do have H&M and other cheap shops for clothing there, if they could save their money and afford something better, they’re more likely to do so than to gorge on cheap goods.
Besides, I am told just by the way you talk, the clothes you wear, the way you mention certain restaurants or areas you vacation at, or even the way you eat, people can tell what social class and status you came from… and of course, the school you went to determines what kind of job you have, so you simply need to only mention the school to have people immediately know (generally) what job you have and what you make.
Your actions give it all away.
THE FRENCH ARE HEAVILY TAXED BUT THEY DO NOT HAVE TO WORRY ABOUT MUCH
This is changing as the years go by ever since the recession hit, but generally speaking in the past, as a French citizen you did not have to worry (much) about:
They are some of the most taxed folks in the world, the French, with tax rates going up to 70% or higher, but this is because the government is supposed to provide everything for them.
(Actually if the French were more organized and efficient, they would have a much better system that is totally debt-free like the Germans, but alas… they are a bit too soft-hearted / socialist for that).
Anyway, in brief here are the points I understood about the French government versus the North American one:
Universal healthcare. France and Canada has this, the U.S. does not.
France’s healthcare is far superior to the Canadian one, but I am happy to have any universal healthcare.
Having lived in the U.S. for a brief period and having American family members, I am appalled by what is considered normal and acceptable there by Americans.
Sure, Americans don’t get taxed as much as the French or the Canadians, but they sure get screwed in other ways.
Everyone complains about this as being a problem in the U.S. which is why Obamacare was such a hot topic, but I don’t think people realize just how horrible of a problem it is in the U.S. compared to other First World countries.
The fact that an ambulance can cost up to $1000 versus $300 in Canada, or that people actually beg to be released out of hospitals early because they simply cannot pay the bill to be able to stay in said hospital to recover from major surgery, is mind boggling to me as a Canadian.
That it can cost over $100,000 for a medical problem in the U.S., or that they can legally
charge gouge $85 for tweezers and $20 for a box of tissues in a hospital, is mind boggling.
If I were still living in the U.S., private health insurance (basic) as a freelancer would have run anywhere from $1000 – $2000 net a month, and taking into account that U.S. minimum wage is $7.25 USD an hour, or $14,500 USD a year, you can’t even make enough money after taxes to pay for basic healthcare.
Even the minimum wage in Canada is $11 CAD an hour, or $22,000 CAD a year, and we have basic healthcare that costs us about $500 a year (per tax-paying citizen).
This is why many people (even those who make triple minimum wage), don’t even have healthcare because they simply can’t afford it, and this is also true for many people who are freelancers!
Even though some freelancers make a very good wage, a lot of them have ultimately told me that they went back to working for a company because the cost of healthcare was far too high and it was a better deal working for an employer than to work for themselves.
Again, this is one of the reasons why I left.
Daycare is free in France, but it is not free in Canada or the U.S.
Aside from the fact that you can’t even get decent, basic universal healthcare for your family for a reasonable price, if you do happen to have children, you have to pay for daycare.
In Canada, it’s not that bad depending on where you live, ranging from $140 (Quebec) to $1200 (Vancouver) a month, per child. (Source)
Again, we take home more money after taxes, but we’re spending it on things like daycare.
Your retirement is supposed to be guaranteed in France at a certain rate based on how many years you worked and so on; many French consider this retirement plan unsustainable because there are not enough young people working, people are living longer and longer, the euro came in and really screwed with everything in terms of inflating cost of living, and so on, but for now, they have a plan in place.
Canada has somewhat similar programs (far less generous, of course) that doesn’t allow very low income earners to fall through the cracks by the time it comes to retire even though it puts a greater burden on those of us who have earned a lot to provide for those who couldn’t or didn’t want to work as much.
Still, the money given by Canada to provide for your retirement if you do not have enough saved on your own is still not enough, but it is not a big fat zero.
The U.S.? Totally screwed.
If you couldn’t make enough money to save to retire, you can’t retire.
This is the case of my American family members who are still working at 76 and only have $40,000 saved for retirement, so they cannot afford to retire.
Again, they take home more money after taxes, but have to also save for their own retirement, on top of paying for healthcare at exorbitant costs and daycare if they choose to procreate.
France takes the cake on this one again.
It is very hard to fire someone in France without just cause and you literally need to gather solid proof and evidence that can be brought to a judge to fire someone or risk being sued, and just hearing the fights between employers and employees to get incompetent workers fired is sometimes cause for great disbelief and laughter in our household.
This is also why the French find it very difficult to find jobs once they are unemployed because no company wants to really take the risk of hiring you only to know that they will have to pay to fire you if you don’t work out.
In France, many companies have a slush fund specifically set aside to pay out severance to workers they want to fire, because by law they have to not only give you a GOOD reason to fire you, they have to give you something when you leave, and it can even be up to 2 years pay or more.
The higher up you rise in the ranks, the more money you get. This is also another reason why they have such strict hiring practices based on the education you received and the school you went to because if they just promote anyone up into the ranks and discover that they are awful managers, they will have to pay dearly to fire them.
In Canada, you get at least 2 weeks of severance by law, no matter how long you worked or didn’t work.
In the U.S., in some parts you have something called ‘at-will employment’ which totally shocked me. It basically means that an employer can fire you at any time without any severance pay, based on very pithy reasons like not liking the way your hair looks, or they don’t like what colour of shoes you wore that day.
Of course you can always legitimately fight that they fired you because of race, sex, ethnicity and so on, but generally speaking ‘at-will employment’ in states that allow it, requires no reason to fire you.
This will be shocking to hear for many Europeans (heck, even Canadians), but true.
As Pauline mentioned, school is reasonably priced and you don’t REALLY go into debt for it unless you go to a school where you pay for the degree.
Not all schools that you pay for are bad.
I am told there is a business school for uber rich kids who weren’t smart enough to make it into the top business schools by their brains alone, and it is quite well respected even though it is a school you pay for.
This school is very expensive (I think I was told something along the lines of $100,000 a year), and wealthy families are happy to pay the tuition for these main reasons:
- You get to send your kid to mix with other rich kids to find their husbands/wives
- It is still a good school because they have the money to pay for good teachers
- These kids will end up working for their families or use family connections to get good jobs
The downside is that if you are not from a rich family and you take on immense amounts of debt to attend said school, they have their own social circles and no matter how good of a friend you are, you are not likely to ever penetrate into their inner society, so it’s kind of a waste of money for anyone who is not filthy rich.
Anyway, the price of school is reasonable in France because they have already filtered out the kids who can’t make it by the age of 16 (or they filter themselves out), and no one is going to spend 2 years of their life studying and prepping for a school that they have no hope in hell of ever entering based on the kids they have to compete against.
The French are, as I mentioned above, way more realistic about their abilities as a culture, and are not going to try for something that is so obviously out of their reach.
Canada, is not so bad.
Our tuition I think is around $7000 CAD a year now (even cheaper in Quebec at around $5000 CAD a year I believe as it is subsidized for Quebec citizens!), which is a far cry from the average $20,000 USD a year it costs in the U.S. for a similar school.
Obviously if you go to an Ivy League school, it is much more expensive than that.
I was talking to a bunch of American kids out of college one time and when I was moaning about the cost of my tuition, they all gave me looks of disgust and said: THAT IS SO CHEAP. We paid 5 times that!
Oops. Hit a sore note.
LOANS ARE NOT EASILY AVAILABLE OR GIVEN
French banks are very, VERY conservative. They will not give you money for new businesses, loans or credit cards because they are not interested in losing their money.
This is both good and bad — without new businesses, innovations and of course, failures, you cannot have great successes like in the U.S., yet by its virtue, it limits any kind of risk where people gorge on cheap credit like we do in North America and buy homes that we cannot afford.
In Canada alone, the current housing bubble scares me in cities like Toronto and Vancouver.
Paying $600,000 – $800,000 for a house that is considered a ‘crappy starter home’ in the U.S., is the norm in Toronto (I watch a lot of HGTV and read a lot of PF blogs).
This is where the U.S. beats both France and Canada hands down in my opinion.
In the U.S., for $150,000 you can get a decent home in a mid-sized city.
With $300,000 you’re living like a queen.
We do not have this in Canada, and in France especially after the euro, it is now far too expensive to really purchase a home at a young age. As a result, they don’t expect to own a home and can rent for life or buy something they can actually afford!!!
FRENCH SAVINGS RATES ARE SOME OF THE HIGHEST IN THE WORLD
In spite of being taxed up the wazoo, they save a heck of a lot of money at 15.8%. Probably out of fear (there is no access to easy credit), and out of a cultural need to do so.
French people tend not to spend every penny that they have on trinkets and enjoying life (YOLO! FOMO!) the way that we do.
We are pretty pathetic in terms of our savings rates in Canada (4.3%) and the U.S. (4%) compared to France (15.8%).
The one area of the world that totally annihilates French rates of saving (relative to income) is China (38%) and India (34.7%).
Anyway, those are the points I wanted to elaborate on based on Pauline’s post.