It’s Time to Tighten Your Financial Belts in the US and in France

The U.S. economy is in critical condition and Americans wish President Obama and Chairman of the Board of Governors of the Federal Reserve System, Ben Bernanke, could wave a magic wand and repair the financial markets. But there’s no magic and people are in for a long haul before a rebound. The French are hurting as well but they’re more adept when it comes to curbing spending. The U.S. President has proposed a ten-year recovery plan. Housing starts are down. People are receiving pink slips informing them they’re no longer employed. People who formerly never worried about job security are shaking in their boots. Don’t even mention all of the homes that are currently for sale or facing foreclosure. Americans feel more pessimistic than ever and wonder how and where they can make cuts — or if they’ll ever be able to retire since their savings are a fraction of what they were even a year ago. During President Obama’s Congressional address, he spelled out the gravity of America’s economic situation. Nearly all parents with college aged children feel as if they are being personally addressed when the President refers to having to put the college acceptance letters back into the envelope since the tuition money is no longer there. He’s requesting that Americans “compromise on things they care about.” There are reports about people who haven’t been financially impacted, who are still buying. But they’re requesting packages be delivered in plain brown bags. They don’t want to appear ostentatious carrying bags with Saks Fifth Avenue logos—even though the company has just posted a loss and was forced to deeply discount its stock in order to move it and have liquidity.  Tourism is suffering big time and there are incredible travel deals available. This is the opportunity to book a deluxe hotel at a fraction of the price. But is this the time to take a trip? Many people feel it’s not, or have cut back their travel plans dramatically.  The French economy is definitely impacted and unemployment here is on the rise as factories and even stores close. But because the French are raised with a different mentality, it’s easier for them to pull in their belts. They have always hesitated when it comes to everyday spending and making large purchases.  Forty percent of the French population is still managing to save more than it previously did, according to Thierry Pailleux, Managing Director of Synovate France, a market research firm. “This is a direct and typical French response. Traditionally France has one of the highest saving rates in the world. So during a downturn, the reflex is to save even more, in case it gets worse. The French financial system supports more ‘life-insurance’ based investment than it does equity investment on the Stock Exchange,” Pailleux explains. Visitors to Paris can’t help sensing the difference. Stores appear to have many more shoppers than purchasers, and this year, it is even more pronounced. Impulse buying is substantially less here than in other countries. Most French tend to buy what they need and don’t go into a store unless they’re on a specific mission. Closets aren’t huge, which limits clothing purchases. Each sale season, the French traditionally update their wardrobes with some new sweaters, jackets and, perhaps, scarves, but they don’t tend to do a major overhaul.  Few French families move for the sake of keeping up with the Joneses, or because they crave a few extra meters of space. Moving is expensive and the French don’t have the renovate-and-flip-the-property mentality. If they do, the banks don’t go along with it since mortgage payments can’t exceed more than 30% of a family’s income.  Prices of French real estate, especially second homes in the countryside, are lower than they were a few years ago, and there’s substantially more property on the market.  Paris lawyer, Tim Ramier, originally from New Orleans, states the French view their homes as their principle asset and real estate as the best possible investment. But he notes that La Banque de France has definite restrictions as to how much debt may be assumed. “Banks aren’t in the repossession business, don’t have real estate departments, nor is there a secondary mortgage market such as Fannie May or Freddie Mac.” Ramier also points out that banks don’t issue clients credit cards. Rather, people have debit cards, and if the money isn’t there, people don’t amass big-Euro debt. There are some subtle differences and ones that aren’t as subtle. For example, The Flo Restaurant Group has inaugurated a less expensive pre fixe menu and many others are following the trend.  People are eating out less frequently and, when they do, tend to skip aperitifs and bottled water and may not order that extra bottle of wine. An increasing number of restaurants are offering wine by the glass, and diners are stopping after one. Fewer people are eating desserts and it’s not solely because they’re dieting.  Discount grocery stores such as ED and LeaderPrice are always full. The selections aren’t as extensive as at Monoprix or La Grande Epicerie de Paris at Au Bon Marché. But who needs to pay premium prices for toilet paper and cleaning products? My French friends say they’re saving money where and when they can.  There’s no question the French have the right idea. The economy is faltering. But not as many of the French are going to have to sell their souls to make ends meet since they’re less in hock. Want to talk about this economy and how it affects your French travel? Visit me on Twitter. © Paris New Media, [email protected]