How do you save, spend and invest your money?
Before you answer, consider: which country you live in influences your money decisions. How you save for retirement, healthcare, or housing, even your splurges on fancy coffees, are determined, in part, by government benefits and the state of your country’s economy. You may not even realize how the course of your financial life is determined by where you live until you compare your situation to that of people in other countries. In turn, global businesses, international investors and even politicians around the world can be more successful in their own and other markets if they grasp the different cultures of money. Case in point: some governments, such as France, fund generous plans for retirees through taxes on wages and purchases. Other nations, such as the United Arab Emirates, turn to the massive revenues from natural resources to fund such benefits. Even with a pot of communal money to fall back on, saving and spending habits can differ widely. Yet, in the United States, health care and retirement are for the most part paid for by citizens themselves, which means saving and investing should be higher priorities. Regardless of the benefits a government provides, those living in countries with high inflation, like Argentina or India, struggle with rising prices. In Japan, which has experienced deflation for decades, investors take on risk so their money can grow. Click through the slideshow to learn how varying nations provide for their citizens, whether it’s a retirement pension, healthcare or a grant to pay for a wedding.
Argentina, where inflation and fears underpin saving
HISTORY During the past 20 years, Argentineans have suffered through bank runs, recessions, austerity measures, salary and pension cuts, currency devaluations and a world-record sovereign debt default. The economy has rebounded somewhat, but high unemployment and sky-high inflation still linger. Experts believe the reported inflation rate — 10.5% in September — is closer to 25%. The government provides a public pension plan, but it's not enough for most retirees, wrote Juan Pablo Fuentes, an economist at Moody's Analytics, to BBC Capital in an email. There’s a public health system that’s available for everyone, but because its service is generally poor, most people use a mixed system, partially funded by their payroll and employers. Upper middle class and wealthy Argentineans use private health care. BANKING Budgeting for many purchases is difficult — high inflation causes prices to rise as the peso loses value. Savings accounts and time deposits, similar to term deposits, fixed rate bonds, certificates of deposit (CD) and fixed deposits in other parts of the world, are popular, though not terribly effective: The interest rate on 30-day time deposits, at 15.1% on 1 Nov, according to Argentina’s Central Bank, is below the inflation rate. Argentineans held about $150.3 bn pesos ($25.2bn) in savings accounts and about $355.1 bn pesos ($59.5bn) in time deposits. Many upper and middle-class Argentineans save for retirement, health care and other needs in US dollars held in overseas accounts or kept at home. “Our culture is to get assets denominated in [US] dollars,” said Augusto Posleman, managing director of private banking at Puente in Buenos Aires, Argentina. Residents often buy US dollars through the country’s strong black market instead of official channels because of government controls that protect the country’s currency reserves. The exchange rate in early November was $1 to about $6 pesos; the black market rate was about $1 to about $10 pesos. SPENDING Durable goods, like cars and televisions, are not affected by inflation, making them common purchases for Argentineans. “A car in Argentina will keep its value more than a car in most other countries, especially developed economies,” said Fuentes. Buying real estate is difficult because it is a challenge to save: formal mortgages are rare; all-cash transactions, with loans from family or friends, are conducted in US dollars. INVESTING Instead of purchasing equities in the country's small and illiquid exchanges, people buy US dollar-linked or US dollar denominated corporate and sovereign bonds. Investors purchase dollar-linked bonds with pesos and receive principal and interest payments in pesos adjusted for the exchange rate. (Getty)
France, where taxes are high — and savings, too
HISTORY Taxes in France are so high that earlier this year, French actor Gérard Depardieu sought to renounce his citizenship. Socialist President François Hollande proposed a 75% income tax on individuals with more than 1 m euros (about $1.4m) in income, though he later backed down. France redistributes the country’s wealth through high taxes that fund public benefits. Income tax is as high as 45%, the social security tax is as high as 12%, and there’s a Value-Added Tax (VAT) of 19.6% for most goods, France has high unemployment, most recently at 11.1% in September 2013, according to Eurostat. The government provides a cushion for its citizens, financing retirement through a pension plan and healthcare through the government’s social security system, l’assurance malady. BANKING The French are savers. “(It's) higher than in the eurozone (on average), and there are no signs this will change much,” wrote Martin Janicko, economist at Moody's Analytics in its Prague office, in an email. Savings rates in France were at 16.0% during second quarter 2013, according to France’s National institute of Statistics and Economic Studies (INSEE). Bank deposits are the most common form of savings, totalling 634.7 bn euros (about $857 bn) at the end of August, according to the Bank of France. Accounts, found also at post offices, generally have deposit limits with tax-free interest — the rate on the popular Livret A account was 1.75%, with a deposit limit of 22,950 euros (about $31,100). Children can open the Livret Juene, and those looking to purchase a home with a subsidized mortgage can save using the Compte Epargne Logement (CEL) or Plan Epargne Logement (PEL). SPENDING The French are sensitive to unemployment and the number of temporary jobs; they spend less if either of these increase, wrote Janicko in an email. If inflation is high and prices go up, they’ll buy less-expensive substitutes at French hypermarkets, which are combinations of supermarkets and department stores. The French spend the most time eating and drinking out of all 34 countries in the Organisation for Economic Co-operation and Development (OECD), an international economic organisation. INVESTING Most French use bank accounts to save for the future, but investing may become a larger part of the culture if pressure from fellow eurozone economies succeeds in forcing the government to reduce pension benefits. (Getty)
Japan: Virtual payments, deflation and currency plays
HISTORY Years of deflation, which has caused real incomes to fall, have taken their toll on the ability to save, invest and spend. The Japanese pay 50% income tax to fund government-sponsored pension and health care systems. (Employers also provide pensions.) But the country’s shrinking population means the government may not be able to sustain these benefits. The government is trying to reform the tax rate and is considering raising the sales tax to 8% from 5%. BANKING The Japanese have historically been savers. The net personal savings rate, about 10% in the 1990s, fell to 0.5% in 2008 but has since rebounded to 2.3% in 2010, according to the Organisation for Economic Co-operation and Development. Most people keep their money in bank accounts. SPENDING Japanese pay for goods purchased at stores through mobile phone accounts. Credit cards are a growing alternative to this virtual currency system. INVESTING Most Japanese invest little, if any, in the stock market, which has offered negative returns for decades and is more than 60% below its 29 December, 1989, high of 38,957. "Interest rates are extremely low and returns on traditional investments are extremely low,” said Bill Adams, senior international economist at the Pennsylvania-based PNC Financial Services Group. The government is trying to increase equity investing with the new Nippon Individual Savings Account program, which allows investments of up to ¥1m yen each year (about $10,000) tax-free for five years. Japanese prefer speculating on currencies over investing in stocks — listening to a country leader’s remarks is easier than reading and understanding balance sheets and earnings reports. Currency speculation is widespread: Japanese housewives — nicknamed "Mrs. Watanabe" — are known as sophisticated retail currency investors. Retail investors may account for up to a third of Tokyo’s spot currency market. “If there are many Mrs. Watanabe, [the amount of money] gets significant,” said Akiko Karaki, senior associate at consultancy Booz & Company in Tokyo. (Getty)
India, where cash and gold are kings
HISTORY India’s economy is the world's 10th largest, but its people are among the poorest. The gross domestic product was about $1.841 trillion in 2012, according to the International Monetary Fund; GDP per capita was only about $1,500 that same year. Less than 3% of its 1.2 bn people pay taxes, according to the finance ministry. Few people are able to save for retirement, which is partially government-funded for employed people. Even though the government offers healthcare, those with means use better-quality private healthcare instead. BANKING Indians hold a majority of their money in bank and post office deposits, which earn about 9% interest, according to the Reserve Bank of India. But India’s high inflation, at 10.7% in September, according to the Labour Bureau, causes prices to rise and the Indian rupee to lose value. The government’s capital controls prevent Indians from purchasing foreign currencies or moving money out of the country. SPENDING India is a cash-based society, with ready money used to purchase big-ticket items and even pay for salaries. This practice allows companies to avoid reporting profits, and workers to avoid paying taxes. Most people spend a majority of their money on necessities like food. INVESTING As Indians accumulate wealth, they often park their money in gold. Gold is considered a safe investment — families exchange gold during marriages — and there’s confidence that the price will always increase. "When the rupee depreciates, as long as gold holds a steady value, [people] come out ahead,” said Adams. Insurance and real estate are among other popular investments, according to Saibal Chakraborty, principal at Booz & Company (India) Pvt Ltd in Gurgaon, India. Real estate has appreciated more than four-fold in the past decade, especially in urban areas like Delhi, Gurgaon and Mumbai. Employed Indians invest a portion of their pay into the government pension plan, the Employees’ Provident Fund (EPF). This fund has an almost guaranteed rate of return of about 8%, and many employers match the contribution. At retirement, people can withdraw a small lump sum and the remaining amount is converted to a pension. (Getty)
United Arab Emirates, where oil riches fund lavish lives
HISTORY The United Arab Emirates was established in the early 1970s after the sheikdoms won independence from the British. The government subsidizes everything from housing to education for UAE nationals, or Emirati, through the country’s oil wealth. In 2011, UAE’s GDP per capita was only $39,058, according to the World Bank, but expats who have come to the country to work outnumber nationals by at least five to one. Neither expats nor citizens pay income tax. The government’s Emiratisation initiative is intended to encourage nationals to join the workforce, rather than rely on the riches the country’s natural resources provide. In 2012, the unemployment rate was 4.2% for the entire population and 14.0% for nationals, according to UAE’s National Bureau of Statistics. Most Emeriti work for the government, said Peter Beynon, Dubai-based regional director at the Institute of Chartered Accountants in England and Wales (ICAEW). “A very small percentage of people are employed by the private sector.” Although retirement is taken care of for working nationals, more than 60% of people responding to a survey by California-based research organization YouGov had less than six months of expenses saved and 15% had no savings. SPENDING The government helps pay for many things for which most people would save. The UAE Marriage Fund, for example, helps lower-salaried Emiratis pay for weddings with a grant of AED 70,000 (about $19,000). Emiratis have more disposable income than most as they have housing and car subsidies; still a growing number of Emiratis are funding their famously cosmopolitan lifestyle with consumer loans and credit cards. INVESTING UAE nationals pay into pension plans and receive generous matches from the government and their employer. In Abu Dhabi, for example, employees pay 5% from their monthly salary, with their employer providing an additional 15% and the government contributing 6%. Emiratis are tight-lipped about their investments, but they do invest in equities, bonds and international real estate, said Beynon. The UAE sovereign wealth fund is one of the largest in the world and has many international investments. The market capitalization of listed domestic companies in the UAE is $67,950 m, according to the World Bank. (Getty)
United States: Slowly recovering, still investing
HISTORY The US economy is the world's largest, with a GDP of nearly $16.25 tn in 2012, according to the International Monetary Fund, yet the government does not provide many of the benefits of other developed countries. The government provides a small pension in the form of Social Security, a system Americans pay into through their payroll taxes each year. Most Americans need to supplement Social Security with their own savings, or by continuing to work. Most Americans' healthcare is funded through a combination of government subsidies, employer contributions and private money. The country is recovering only slowly from the Great Recession, said Ryan Sweet, director at Moody's Analytics. BANKING Two-thirds of Americans live pay cheque to pay cheque, according to the American Payroll Association, but Americans are starting to save more overall. The personal savings rate was most recently at 4.6% in August, according to the Bureau of Economic Analysis. In general, Americans are comfortable keeping their money in banks because of the government safeguards like the Federal Deposit Insurance Corp. that protect deposits. “Confidence in the banking sector was tested in the Great Recession, but this has been somewhat restored and there’s confidence in the backstops,” Sweet said. Debt levels have also come down and are back to levels of the 1990s. SPENDING Americans spend 30.2% to 40.0% of their incomes on housing, and 11.4% to 15.8%, on food, with high-income earners (those making more than about $92,000) spending lower percentages, according to the Bureau of Labor Statistics. Those earning less than about $35,000 spend less than 5.3% on personal insurance and pension savings; those with incomes in the highest range can afford to save more: 16.0%. INVESTING Most Americans own stocks and bonds, most often through retirement savings plans. The plans are funded by tax-free income, said Russell Price, senior economist at Ameriprise Financial in Michigan. Many employers match all or a portion of contributions. At the end of second quarter 2013, Americans had $13.6 tn invested in mutual funds, according to the Investment Company Institute. (Getty)