Cock-a-doodle-doo! “Savings: the French are richer than the Germans”, boasted Les Échos on May 4th. In fact, according to a study realised by ING with data from Banque de France, “The whole of French wealth owned by individuals totalled 5.233 Trillion euro at the third quarter of 2017, up 8.5% year-to-year. This is the equivalent of 178,200 euro of gross financial wealth per household. After subtracting the debt, which was at the time of 1.576 Trillion euro, the net worth of French households (124,600 euro) is still impressive. It means that French households were 15% richer than their German counterparts (107,700 euro) in the third quarter of 2017.” If we add non-financial wealth, e.g. mainly real estate, the entire wealth “totalled 7.5 Trillion euro in 2016, or 255,400 euro per household.”
Those numbers would make sense if the French economy was outperforming Germany’s, but the contrary is true – by far, whatever the indicators used. So how can we explain this French “performance”?
First of all, Frenchmen do not save more than the Germans because they’re richer, but because they do not trust their pension system. And they’re quite right: the pay-as-you-go system is going awry and it keeps accumulating deficits which are always settled by trimming on the benefits. Funded pension, on this side of the Rhine, is taboo and no government wants to go there, even though it would improve the yield of the pension plans if it were used, even only in part, but... no.
On another note, the article states, “80% of the French say they do not trust investing in the stock market.” So the French trust neither their pension systems nor their large businesses. So much for “cock-a-doodle-doo”!
So where are going these “record” savings? In the two investments the French love the most: real estate and life insurance. The price of real estate in France, especially in Paris, is among the highest in the world; but will this last as the beneficiaries of the “Thirty Glorious Years” try to sell to younger generations, many of whom are unemployed or struggling to find decent jobs? The purchasing power of the new generations is not as high as the prior ones, especially with regard to housing. As a matter of fact, investing in real estate today in France constitutes quite a risk.
And what about life insurance? As everyone knows, it is essentially invested in State bonds. In Germany, they have had budget surpluses for several years, and all political leaders wish this to continue. There is no doubt that the country will be able to manage its public debt which, incidentally, has stopped growing. But what about France? Unable to initiate real structural reforms, it is, for the moment, enjoying a modest rebirth of international growth. However, the slow rise of interest rates all around could bring about some serious problems. We know that the Sapin Law 2 allows the freezing of life insurance accounts in case of a crisis... the mechanics are in place. Investing in the “full faith” of France today is just as risky.
With this dark picture, the French are forgetting an investment they long used to cherish before they let it go: physical gold, that is. Many families still keep a few gold napoleons, but gold is not perceived as an important investment, and this is a big mistake! With gold you get the best security, a real guarantee of time-honouring value, guaranteed liquidity at all times, a simple, homogenous investment, when compared with the complexity and opacity of financial or real estate assets. There is no glory in being “richer” than our neighbours; let’s start with making our economy more performing, and let’s protect our savings better.