Wednesday, July 31, 2013

The way we handle money

I nearly missed this month's post, but here it is. I noticed quite a long time ago that people in my country (Germany) are very conservative with their money-saving methods. Note that I am not talking about what to do with the money, just how to save it.
Germans have no problem wasting money on parties, alcohol and cigarettes, which shows that they are not so afraid of having no last resort for bad times. On the other hand, they are absolutely unwilling to take the slightest risk when it comes to money management.

The most popular saving method is the so called "Sparbuch", a bank account with very low interest rates. It was made popular from very childhood on in my case. You get a small booklet with empty pages in it, only the first page shows your current bank balance. You could go to the bank and bring your pocket money there, and thus save money again and again. As a child, it had a good effect on you because you could see your money grow.

Germans are happy when they see that there money is safe in a cruel world full of corrupted and evil people who are after our money (Greeks, Portuguese etc. - just kidding). The people believe that stocks or bonds are only for experts. They especially believe that stocks, in general, are always "risky". They don't put this term "risk" into any relation, it's just a label as in "dead" or "pregnant". You can't be a little dead or a little pregnant, and the same goes for stocks, they assume. They are risky. Period.

They don't know that inflation actually is a risk too. I saw the news today and it was mentioned that prices for common goods like milk, eggs or fruits rose by more than 5 per cent, which means that they same money you had one year ago could buy you a lot more of these things than it does today.

But people here don't see that. They are happy to have gotten 1,25 per cent on their savings, because technically, the numbers on their bank account are bigger than before. They don't realise that the money has less power to buy them stuff.

I also noticed from trading stocks for a over a year that, even with a very conservative strategy, it is quite easy to get a profit of 5 per cent per year, if you use dividends. It doesn't even require any time once you picked your favourite stocks. And it's one of the less risky ways. But then we have the other problem again: Germans like to spend money uselessly. And when it comes to their savings, they will like to get that invested money back to buy a car or a house. Then they are surprised if the stock price is low, and will have lost a lot of money when they get the money back from selling at the "I need my money NOW!" moment.

And now let's go back to the good old Sparbuch. Its money is available all the time, they can take all the money out of the account at any time. Maybe that's why Germans don't like to be adventurous about money.

I am actually quite shocked to see that my intellect has made me capable of beating an average German's annual profit in less than an hour. I don't think of myself as a genius, and sometimes I think that maybe I'm not clever for probably not noticing something (that's the "it's too good to be true" feeling).

Well, it's also good that there are many mindless idiots out there because as long as I can exploit the flaws of the system, there is more money for me to be made... hahaha.