The United States has one of the largest economies in the world, and as a result, there is a huge market for financial advice and services. This means that there are plenty of opportunities for people to become finance experts and market themselves as gurus.
There’s a large community of finance experts and thought leaders, all sharing their advice and insights on various financial topics online. This has created a thriving industry of personal finance books, podcasts, and videos, all aimed at helping people take control of their money and build wealth.
In recent years there has been growing awareness about the importance of personal finance. With many people looking for ways to improve their financial situation, these gurus are everywhere. This has led to a rise in the number of finance gurus who offer advice and guidance on how to manage money and build wealth.
This is why, if you search online, these experts are the first to pop up. But the education they impart is not relevant in Europe. All different member states have very different principles that they stick to. The financial systems are very different in Europe, especially Germany.
Because of EU regulations, Germans do not have access to some American investment products, such as US-domiciled ETFs. The brokerage platforms and pension products available in America may also differ from those available in Europe. Additionally, currency risk and taxation laws can vary between the US and Europe, making some finance topics not applicable to European investors.
Financial Advice for German Residents
1. Financial Products Availability in America and Germany
One of the biggest issues you’ll face is product availability. This is especially true when it comes to investment products like ETFs or mutual funds.
When American finance creators talk about specific ETFs or mutual funds, they’re usually referring to US-domiciled funds – funds that have been set up in the United States. But, here’s the problem – Germans can’t access these funds due to EU regulations called PRIIPs (Package Retail and Insurance-based Investment Products).
This regulation requires US-domiciled funds to provide a key information document to European investors, but this document isn’t always provided. As a result, German investors are cut off from these funds. Instead, German investors have to settle for equivalent funds that are domiciled in the EU.
While these equivalent funds are similar in terms of what they invest in, they’re nearly always going to be different in terms of fees. So, the fund the American creator is talking about might actually be very different from the fund that’s available to you. This brings us to our next section and why it carries a lot of weight.
2. Brokerage Platforms and their Fees are Different
Popular American brokerage platforms like Robinhood, M1 Finance, and TD Ameritrade are not available in Europe. European investors need to use brokers that are specific to their region, such as Jiro, Trade Republic, or Trading 212.
This means that the features and products available on American platforms might not be the same on European platforms, especially when it comes to ETFs and options. Moreover, it opens you to currency risk, which is a big factor to consider.
American finance gurus do not always highlight the impact of foreign currency fluctuations on investment returns. As a European, you are exposed to currency risk when investing in American stocks listed on the New York Stock Exchange or NASDAQ, as these are priced in dollars. This means that even if the stock increases in value, the loss in the value of the Euro can and will offset the gains.
It is important to think about hedging currency risk when investing in an S&P 500 ETF as a German, but this is not a common topic for American creators as their content is primarily intended for American viewers.
Think of currency risk like a game of cards. You may have a great hand with a stock that is increasing in value, but if the value of your home currency is decreasing, it’s like the dealer giving you a bad hand and wiping out your winnings.
3. Pension and Retirement Plans are not the Same
If I had a euro for every time a German investor asked how to set up a Roth IRA or 401K, I would not be writing this. Just kidding, no one asks me this. But people do think about it. Especially expats. I know many others who share this pain. Let’s be abundantly clear about this, Roth IRAs and 401ks are American pension products—they don’t exist outside of America.
Do similar products exist? Absolutely! But they’re not called “Roth IRAs” or “401ks,” so if you want to learn about that type of retirement planning for Germans, look towards local resources. Any content that isn’t made with Deutsch’s context will be a complete waste of time. Use Google translate, ask around in Facebook groups, post on Reddit, and join forums.
Although the pensions industry is global, different countries have very different laws governing how pensions are taxed and what type of products people can buy. Pensions differ greatly in Germany. In a European nation where pensions are well-developed, the difference between retirement benefits available there and those in some U.S. states is significant.
Unless you’re planning to move abroad, American retirement investing is largely irrelevant. So don’t waste time learning about it—stick with local pension content!
4. Germany Taxes are a Minefield
Taxation is another complicated topic, and it’s important to remember that each country has its own set of tax laws. If you’re a German investor and you come across an American finance video talking about reducing your taxes, it’s likely not relevant to you.
It’s crucial to differentiate between principles and rules when it comes to taxation. Principles are universal and applicable everywhere, but rules can vary from country to country. For example, a widely accepted principle in taxation is that gains on investments are only taxed when they are realized through a sale or similar event. On the other hand, a specific rule like the capital gains tax rate and the rules surrounding it can vary globally. And the German capital gains taxes are some of the very hardcore ones to navigate.
Think of it like cooking a dish. The principle of using fresh ingredients is universal, but the specific recipe and ingredients used can vary depending on where you are in the world. In summary, when it comes to taxation and other topics, it’s best to focus on principles rather than specific rules, as these can vary greatly from country to country.
5. Very Specific Mortgage Regulations
Mortgage rules and regulations vary greatly from country to country, making it crucial to understand the specific requirements in your own country. An example of this can be seen with European macro-prudential regulations, which were introduced after the financial crisis to limit the amount of money an individual could borrow from a bank to purchase a home.
For instance, in Germany, the maximum mortgage that a first-time buyer can take out is four times their gross income, along with a deposit equal to at least 10% of the property’s value. These rules are specific to Germany and do not apply to other countries, such as America or other European countries. This is why it is important to be mindful of the source of mortgage-related content, as the entire mortgage process, from requirements imposed on borrowers and lenders to the types of mortgages offered, can differ greatly from one country to another.
For example, while 30-year fixed-rate mortgages are common in the United States, fixed-rate periods in Europe tend to be much shorter, usually less than 10 years. It is essential to be well-informed about the mortgage system in your own country, as it can have a significant impact on your financial future.
6. Credit Cards and Interest Rates are region-specific
In the United States, credit cards are widely used and are culturally accepted. American credit card providers offer incentives and bonuses to attract customers, as they believe that credit cards are a great way to build a good credit score.
In Germany, cash is still king. People have credit cards but their reliance is not as great. They are more prudent with it. Moreover, in a country where flashing your wealth is not looked upon kindly, Platinum and Titanium cards do not carry the same weight.
The credit score is a crucial aspect of personal finance in America, as a higher score means access to lower interest rates on loans. This is why credit cards are encouraged as a way to build a credit history and improve your score. However, the credit scoring system in Germany works differently. Your Schufa score has value but it is not the sole determinant in your getting a loan or being approved for a credit card.
Moreover, an individual’s credit score is not widely known and is typically only kept within the lending network. Lenders record an individual’s lending history in a centralized database, so other lenders can see it. This system is designed for the mutual benefit of all lenders to ensure they do not lend to individuals with a bad credit history.
In Germany, for instance, having no credit history does not negatively affect your chances of getting a loan or the interest rate you pay on it. The only thing that matters is not having a bad credit history. Therefore, getting a credit card for the purpose of building a credit history is not necessary in Germany.
It’s important to note that credit card usage and credit score systems can differ significantly from country to country. It’s essential to understand the specific rules and regulations in your own country to avoid wasting time and effort on practices that may not apply to your situation.
7. Macroeconomics of Germany are different
Macroeconomic content refers to any information related to the wider economy. It takes into consideration the prevailing interest rates, inflation, recession, changes in the housing market, and tax law. Although American macroeconomic content can be relevant to Europeans, much of it may not be applicable.
For example, changes in the US federal reserve’s monetary policies can impact the value of the US dollar and stock market, which could be significant to European investors who have an interest in US securities. However, for the average European without an investment in US securities, the interest rates and inflation rates in America may not be relevant. After all, we have the Deutsche Bundesbank and European Central Bank tasked with catering to needs on this side of the pond.
Unless the gurus specifically explain how these changes could impact Germany, the information may not be useful. For instance, if US house prices are at an all-time high, it may be challenging for US homebuyers, but it does not have a significant impact on prospective European homebuyers.
It’s important to consider the context of the content and the intended audience. Most American creators cater to American viewers and usually do not explain how macroeconomic conditions in America may impact Europeans. To ensure easy consumption, it’s crucial to clarify the information and highlight the relevance of American macroeconomic conditions to Europeans.
Conclusion & Way Forward
While American finance content can be entertaining and informative, it’s not always relevant to people outside of the United States. More likely, you will find yourself wondering why it doesn’t seem to be applicable to your financial situation after a lengthy read.
It’s always best to get your financial information from a credible source based in your own country, so you can be sure the content you’re consuming is relevant to your financial context. As a resident of Germany, it is important for you to educate yourself with content that is specific to Deutschland as it will be practical for your individual financial situation.
Best finance blogs in Germany
There are many great financial bloggers in Germany who offer valuable insights and advice. These bloggers cover a wide range of topics, from budgeting and saving money to investing in stocks and real estate. They provide practical tips and advice to help people make informed decisions about their finances and reach their financial goals.
Whether you are just starting out on your financial journey or are a seasoned investor, following these bloggers can provide you with valuable information and inspiration. They share their own experiences and expertise, as well as provide analysis and commentary on the latest financial news and trends. They are a valuable resource for anyone looking to take control of their finances and build a secure financial future.