During a recent trip to Germany, I found myself in a bit of a bind when I needed to pick up a few essentials at the grocery store and remembered (once I arrived) that I could pay only with cash or a debit card. Since I had been out for a walk and just brought my credit card along, I had to trudge back home empty-handed, all the while shaking my head at the inconvenience of Europe.
Now, that’s not really fair, since some countries in Europe (such as the U.K.) are jumping on the cashless bandwagon and accepting credit cards virtually everywhere. Germany isn’t one of those countries. In fact, a May 2014 Federal Reserve study on credit card versus cash usage showed Germans are leading the cash pack, making 80 percent of all purchases with paper notes. Shoppers in the U.S. make less than half of their purchases with cash.
Germans save 3x more
This raises the question: Does credit card usage make a difference when it comes to savings? Maybe. While correlation doesn’t equal causation, it’s interesting to note that the personal savings rate in Germany (16.7 percent in the third quarter of 2015, according to the Organization for Economic Cooperation and Development) is three times that of the U.S. (5.05 percent in the same quarter, according to the St. Louis Federal Reserve).
While the difference is surely not tied entirely to credit cards, there are major differences in how people view and use credit in Germany and the U.S. Having lived in Germany for five years, I gained some firsthand insight into this culture (and participated as well, saving more than I ever have in the U.S.). When I spoke with other expats who still live there, they validated my views, saying they, too, both save more and are more conscientious of what they spend, since making purchases takes slightly more effort. So, in an effort to help get our savings rate up to the double digits (where it has only been once since 1985), I’ll share some tips on how to save like a German.
- Use your credit card only if you have to.
The only times you really need to use a credit card is if cash isn’t an option. Plane tickets and car rentals fall under this category. However, in Germany even this is discouraged. For online transactions, there is almost always an option to pay directly from your bank account and most of the time you’ll be charged an extra fee if you use a credit card.
- Pay your balance in full every month.
Forget fancy rewards cards, most credit cards in Germany are issued by your bank, come with an annual fee, and are directly linked to your account. At the end of the month, the bank simply subtracts the total credit card bill from your savings or checking account. Since credit cards in Germany typically come with a much lower credit limit, the chance you’ll spend more than you have is low.
If you want to make sure you’re paying your balance in full as well, eliminate the temptation to do otherwise by linking your credit card to your bank account and setting up automatic withdrawals for the full amount. The pain of seeing your true spending reflected in your account could help deter future impulse buys.
- Use only one credit card.
Unless you know how to manage multiple cards like a pro, you probably are better off just using one if you want to keep close tabs on your spending. And, if you’re following the advice to use credit cards only when there is no other option, then one will more than suffice.
- Don’t shop on Sundays.
German stores are closed on Sundays and believe it or not, when shopping is prohibited for half of your weekend, you spend less! When I moved back to the U.S., I was ecstatic that I could once again shop seven days a week, almost 24 hours a day. However, I’ve definitely felt the difference in my overall savings rate.
To avoid that, do like the Germans do. Leave the wallet at home, put on your hiking boots and go take in a bit of nature on your day off. You’ll feel better for it, and your bank account will too.
The basic takeaway from the German spending experience: make it harder to buy. Whether that means leaving your credit cards at home, restricting your shopping days, or paying off your cards in full each month, create a barrier to spending and you may find yourself hitting that double-digit savings rate in no time.