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German Angst and credit cards

posted by N26 • • April 14, 2016

Dear fans of modern payment methods,

We’re still amazed by your overwhelming enthusiasm for the NUMBER26 NO-CASH CHALLENGE running this month.

But we’re also aware that (for those of you still qualifying for the challenge) it probably hasn’t always been easy. That’s because it’s simply a fact that Germany and Austria, the two countries where the challenge is running, are both lagging other markets when it comes to modern, cashless money transfer options.

160413_infographic_cash-credit-comparison-blog_ENConsider, for example, that:

  • German and Austrian wallets, on average, are stuffed with twice as much cash as Dutch, US or French wallets are.
  • Only 1 in 3 Germans has a credit card, according to a study by the Bundesbank from 2014.

Why do people between the Nordic Sea and the Alps seem to love cash so much? Let’s explore a few theories.

Honestly we’re a little tired (and skeptical) of hearing the old argument that cash provides better “control over spending.” You could just as easily argue that cash is more of a black box that makes it tough or even impossible to track where your money really went (can you really remember that you spent 6 Euros in cash 12 days ago for a hamburger and drink for lunch?). On the other hand, if you use the right app (hint, hint),you can have full transparency and statistics about how you’re spending and trending.

Another hypothesis is that cash provides a sense of anonymity that is especially prized by Germans and Austrians. We’ll concede that there probably is some merit to this, driven by the German/Austrian sensitivity to privacy after the decades of government prying that occurred in the mid-20th century.

But an insightful theory espoused by Quartz provides what may be the most fundamental (and most historical) rationale for the deep “German Angst of credit cards”.

No other historical event changed the attitude of Germans to money more than the great inflation in the 1920s. Back then, money lost so much of its value that people used cash bills to fuel their heaters, provide material to make children’s toys, and even wallpaper their homes (which actually is an awesome idea for one of our conference rooms. We’ll go for small out-of-circulation Italian lire notes, please).

Studies have shown that inflation didn’t actually cause people to lose faith in physical money, but rather it increased their skepticism about any payment method other than cold, hard cash. (As one example, employees were typically paid early in the morning so they had time to spend the money the same day before it devalued even further. The litmus test for getting paid for anything was: the more tangible, the better.)

The era of hyperinflation also likely helped establish the long-standing Austrian/German sensitivity to taking on debt. Consider even today that mortgage debt (and home ownership in general) is far lower in Germany and Austria than in other Western European markets. It’s logical, then, that credit card usage (and credit card debt) would follow a similar trend. How could an inflation event of the ‘20s continue to affect today’s new generation of banking users? Well, one reason is that financial guidance and attitudes towards money tend to be passed from parents to children, as many other life lessons are. So it takes time for attitudes to change.

Do you really buy that logic? We’re guessing probably not. Because by virtue of using NUMBER26 (and reading this post),you’re probably more open to new technologies in general and financial innovation in particular, than the vast majority of the population.

And that’s why, dear supporters of innovative payment solutions, we’re especially proud to have you on board. We wish you tenacity and perseverance in the next weeks of the NO-CASH CHALLENGE! Stay strong.

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