Saving money is considered a virtue in Germany. In other words, saving isn’t just a simple economic calculation, but rather is a value in its own right.
Experience shows that many people are inclined either not to save at all or save significantly less than they should to provide for their future. An established savings culture is needed to create a counterweight to that tendency.
A horrifying 40 percent of Germans say that they don’t save at all. But even those that do saver are clearly falling short of subjective goals in providing for the future.
According to a current survey by the National Association of German Cooperative Banks, the BVR, the amount of savings people consider to be necessary is about 25 percent higher than the amount they actually save.
The insights of modern behavioral economics underscore the need for a functioning savings culture. In a situation in which people are faced with confusing information, important decisions are often postponed, which is likely to lead to the inadequate use of more complex retirement pension products. This is reinforced by a tendency toward poor self-control.
Although many people recognize the need to save for retirement, they often fail to translate this recognition into seeking qualified advice and reaching the relevant pension agreements.
Monetary policy should not ignore the harm that is being inflicted by the unsettling of citizens and the damage to the savings culture when interest rates are close to zero.
This behavior on the part of citizens should not necessarily lead to substantial defects in providing for old age. The overwhelming majority of Germans are likely to be adequately provided for in retirement.
However, the situation has been significantly worsened by the interest-rate situation imposed by the European Central Bank and the inevitable loss of the compound-interest effect of zero interest rates on longer-term investments.
For instance, a person who saves €50 ($56) a month at 3 percent annual interest ends up with a cushion of €29,000 after 30 years. Without the interest, the same person has to significantly increase his or her monthly savings goal to €80. This affects small savers in particular, who tend to be less likely to invest in higher-risk and therefore higher-return forms of investment.
A cost-benefit analysis in monetary policy should not ignore the harm that is being inflicted by the unsettling of citizens and the damage to the savings culture when interest rates are close to zero. The introduction of the term “penalty interest” to describe the interest policy of the ECB also amplifies this damage in our emotional perception.
Without impairing its goal of maintaining stability, the central bank should dispense with negative interest rates on bank deposits with the ECB today, and prepare for a change of course to a less expansive monetary policy next year.
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