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Thursday, June 7, 2012

Reflections on the German word "Schuld"

While listening to Paul Krugman's (Nobel laureate in economics) presentation on the Commonwealth Club podcast I was struck by his comment about cultural differences in attitude toward debt, especially what he noticed about Germans: The German word for debt and guilt is one and the same, Schuld.

That linguistic observation transported me back to my childhood in Germany. Now, all my observations are from a sample size of one, and I also have to state that I was raised by parents who survived the German depression years of the 1930s, the second World War (my father was for several years in a Russian prison camp), escaped from Eastern Germany to West Germany with just a suitcase in 1952, and started all over from nothing twice.

So, here is what is what I grew up believing: 

  • Only weak or lazy people have debt
  • Debt is something to be ashamed of
  • If I am indebted, then that person/organization has control over me (The German saying goes like this: "Wes Brot ich ess, des Lied ich sing."
  • Planning and saving is more important than spending - the opposite of conspicuous consumption
  • People with money in the bank are honorable people

There are more examples, but I will stop here. 

What did this mean for me personally? Well, I have never ever bought anything in Germany that I didn't pay for with cash. That included the brand-new car I bought at age 18. (I had been working every vacation since age 14.) When credit cards came to Germany, I only used them for convenience, not for credit. And I saved almost 20% of my income every month by setting up an automatic transfer into a savings account, so that I didn't even 'see' the money in my checking account. 

Then I moved to California. Two things struck me right away: that buying cars with borrowed money was the rule rather than the exception; that the government encourages its citizens to take out huge loans to buy houses by making the interest tax deductible. Most countries in the world don't have that government support of home ownership, something I point out in almost every class I teach.

I still buy cars with cash, I just can't help it. I save and then I have a budget to work with to purchase a car. I also keep my cars a long time - my previous car (bought used) I kept for 15 years (I do know a very good mechanic. : )

Then I bought a house. The first time in my life that I was in debt. Really, I lost sleep over that, but by then I had studied business and I understood that it was a rational business decision. I kept remembering the time when my parents bought their house in Germany in 1970, and had to take out a loan to do that. They put almost all their energy into paying back that debt as soon as possible and were debt-free after six years!

So, even though I no longer lose sleep over my mortgage, I have a prepayment plan set up. This also makes good business sense. 

Bottom line: I am grateful to have learned money sense from my parents. And I am grateful that I am now influenced by American money culture. The two together seem to bring a healthy balance to my life. I do splurge sometimes, but still use credit cards only for convenience. 

Credit card companies hate me.