Saving: Yesterday, Today, and Tomorrow
The exhibition ‘Saving – History of a German Virtue’ opened on 22 March. It presents traditional German thrift and the culture of saving, and also addresses this history in the context of current international criticism. Hansjörg Leichsenring, banker and editor of the Bank Blog, takes this exhibition as an opportunity to trace a short history of German thrift, and to predict which factors will motivate saving in the future.
We all know that money doesn’t bring happiness, but saving apparently does. Perhaps this is because it gives many of us the peace of mind to be on the lookout for happiness?
Germany is traditionally known the ‘nation of savers’. The Germans seem to save gladly and persistently out of conviction, and don’t let even low interest rates stop them. It is therefore not surprising that the Deutsches Historisches Museum in Berlin has dedicated an exhibition entitled ‘Saving – History of a German Virtue’ to the topic.
The first German sound film ‘Melody of the Heart’ (Melodie des Herzens) indicates how popular saving has always been here. In it, Willy Fritsch (best known for his role in Die Drei von der Tankstelle or The Three from the Filling Station) woos his sweetheart in the moonlight with the rather unromantic words:
He doesn’t mean a saddle horse, but rather a horse that would lay the cornerstone for founding his own business as a carter. After reassuring herself of the seriousness of her suitor’s intentions, his beloved answers:
We must remember that the film came out in 1929, just six brief years after the hyperinflation of 1923, when all savings lost their value and money became worthless. The exhibition addresses this traumatic event in the section on ‘Saving in the Weimar Republic’.
The tradition of saving
One thing is certain: saving has a long tradition in this country. The first savings bank was founded approximately 240 years ago in Hamburg. Saving was thus given an institutional framework. People no longer needed to stash their money in the proverbial stocking or hide it under the mattress. Instead, they could place it in the hands of a trustworthy institution that guarded it well and even added to it by paying interest.
‘School saving’ also became an integral element of early childhood education. Encouraging people to save was part of the ‘public mission of the savings banks’. It was also, of course, a way of attracting new customers, true to the old adage ‘from the cradle to the grave’.
I remember well my own first experience with saving. On the first day of school the local savings bank gave every child a school savings book. These had spaces for pasting in savings stamps. For each stamp we had to pay a certain teacher 50 pfennigs. When the book was full we could bring it to the savings bank to open a savings (bank) book there. In addition to the five Deutschmarks that we had saved ourselves we then received five marks more as a gift from the savings bank.
Given the amount of manual labour involved, clever business consultants today would denounce the whole process as inefficient and in need of optimizing. Addressing children in school is also now controversial, not least for the sake of privacy protection, as a Google search for ‘school saving’ quickly shows. Most institutions have therefore withdrawn from school saving programs. This appears particularly regrettable in light of studies indicating that the majority of Germans either have a comparatively poor understanding of finances, or overestimate their understanding of financial matters.
Traditional saving loses money
Worldwide Germany ranks among the countries with the highest savings rate, as figures published by the OECD confirm. This picture, however, has some cracks. According to a recent survey, at least one quarter of German consumers have no savings. This is the second highest percentage among the 13 European countries, Australia, and the USA. Those Germans who have money stashed away, however, save more than the average amount. The idea of the ‘land of the savers’ must therefore be examined in a nuanced manner.
In addition, Germans mostly save incorrectly. They still prefer forms of investment that offer fixed interest. To this day the good old savings book (which is almost never available in book form anymore), fixed deposits, and bonds are preferred to stocks and equity funds, although the latter, viewed historically, promise higher returns. According to a recently published study a single-person household loses on average €872 per year.
Along with an inadequate understanding of financial matters, the institutional construct also plays a significant role. For decades nationwide banks and local savings banks have focused primarily on deposits collected by saving. These were then loaned with interest (for a long time exclusively) to businesses, generating a margin of interest that kept the credit institutions running.
The credit institutions, among them above all the savings banks, only recognized late in the game the business potential of, firstly, expanding their customer base to include private consumers and, secondly and most importantly, the securities market with its commission rates.
In addition, although the government promotes the practice of saving, it also places a sizable burden on investment consulting. While this is understandable for consumer protection, it has also led to the relatively low popularity of stocks and bonds here compared to other countries.
Will robots handle saving in the future?
Over the last ten to fifteen years digitization has had a massive impact on the everyday activities of companies, people and society. This change has also affected the ways in which we deal with finances and our relationship to financial institutions. This is reinforced by new technology-driven companies, known as FinTech startups, which break new ground with innovative ideas and concepts, in particular bringing young customers together with financial services.
This makes an impact, and also affects the ways people save. For example, there are now mobile apps that automatically invest any left-over disposable income their customers may have at the end of the month, differentiated according to savings objectives, and regularly report on the progress of these investments. Digital support is also expected to facilitate access to previously under-represented forms of investment. So-called robo-advisors offer clients investment strategies in securities funds and exchange-traded index funds (so-called exchange-traded funds or ETFs) tailored to their personal needs. Demand assessment, monitoring, and adjustments are digitally automated by intelligent technologies. New technologies in the field of artificial intelligence will further reinforce this development.
Saving will continue to play a major economic and socio-political role in Germany. For years consumption, retirement planning, and home ownership have ranked as the top three motives for saving. That is unlikely to change in the foreseeable future.
The decisive argument, however, for why people save remains that saving makes us happier. It makes us proud of our own achievements and heightens our sense of satisfaction. Even people with limited savings take pleasure from those savings that they have. Saving regularly makes people particularly happy: 81 percent of people who save money every month identify themselves as satisfied.
Given this high percentage, who can doubt that saving has not only an interesting past, but also an exciting future?
Dr. Hansjörg Leichsenring
Dr. Hansjörg Leichsenring is an expert on banking, innovation, digitalization, social media, change management, customer service, and marketing.