On Make Money Your Way, Troy continues his series on investing for beginners by explaining the two types of options: Call options and Put options.
Have you ever wondered if people around the world have as much debt, credit cards, student loans, or consumer loans as you do? When I first read US personal finance blogs, I was shocked by the amount of debt people had. At first, I thought only people with a lot of debt would start a blog about personal finance, but then I saw studies showing that it’s normal for Americans to have car loans, student loans, and several credit card balances.
In France, we do things differently. It could be because our grandparents lived through WWII and are very cautious with money, passing on values of frugality and good money management. Or it might be that the system makes it hard to borrow money without a good job.
Student loans are very rare here. A few students at my business school took on loans, but many like me managed without borrowing money for college. Public university costs around $2,000 a year, and even expensive business schools have work/study agreements with companies that can cover tuition. So, most students don’t need loans unless they want to experience “full college life” or study abroad.
We also typically don’t take out car loans. I didn’t own a car until I was 29, and most of my friends still don’t. Outside big cities with good public transportation, people might own cars in their 20s, but they often buy cheap, old cars with money saved from summer jobs. Only a few people I know have financed a car.
When it comes to credit and debit cards, the majority of French people have a “carte de crédit,” which works more like a debit card with an overdraft. Purchases are deducted from your account within a few days, and you can go into overdraft but can’t carry a balance like you can with credit cards in other countries. Owning one of these cards usually comes with an annual fee of about €40 ($50).
Most people also have an overdraft authorization on their accounts. My overdraft rate with ING is around 8%, much better than the minimum fees at my old bank. Overdraft rates here are usually lower than credit card rates, anything over 16% is considered usury.
Store credit cards are rare, and most people don’t apply for them. Generally, if you can’t afford to buy something outright, you don’t buy it.
Because we don’t commonly use revolving credit, we don’t get travel rewards, hotel points, or cashback benefits. Our credit cards usually just come with a yearly fee that includes some purchase protection and identity theft cover.
When taking out any loan, banks here check your income to ensure you can afford the repayments. You generally need to earn at least three times the loan repayment amount. For instance, if you earn €1,000, you can take a €333 mortgage. If you already pay €350 in rent, you can’t borrow anything. This strict criterion limits bankruptcies but makes it challenging to get a mortgage, especially with rising real estate prices in Paris. Often, parents have to co-sign mortgages, which is quite a situation for someone in their 30s or even 40s.
Here, we don’t have credit scores. There’s just a bad debtor file at the central bank that lists people who have gone bankrupt. Banks check this after they assess the affordability of a loan.
Generally, our only debt is our mortgage. Given the complexities and fees associated with borrowing, most French people don’t take on other types of debt. If we do need extra money for things like home renovations, we might take a consumer loan but aim to pay it off quickly.
As a result, we usually graduate debt-free, and you rarely hear about massive debt journeys from people in France.
Where else have you noticed differences in debt and financial habits?