GERMANY A GOOD LIFE THAT COMES CHEAP

September 30, 1991

To the average U.S. family that saves a meager 5% of its after-tax
income, Peter and Barbara Hagel, both 39, of Salmbach in southwest
Germany, seem downright superhuman. Last year the couple squirreled
away an astonishing 34% of chemist Peter's 87,692 Deutsche mark
($50,861) after-tax income, nearly triple the lofty average German
savings rate of 13%. Yet the Hagels, whose total household income of
109,953 D-marks ($67,773), including $4,000 in investment income,
puts them in the top 18% of Germans, are in no sense living a dreary
life of denial. (All subsequent monetary figures are quoted in
dollars using a late-August 1991 exchange rate.) They unsparingly
feed and clothe two cherubic children: Christian, 4, and Julia, 2.
And, like only 39% of households in what was called West Germany
until October 1990, the couple own their abode, a sun-filled,
three-bedroom house near the romantic Black Forest. They even took
two vacations -- one to France and one to the North Sea -- last year.

What's their secret? Explains the bearded, bespectacled Peter
matter-of- factly: ''We didn't have any major expenses last year, and
we're more careful than average in our spending habits.'' He can say
that again. Peter is so prudent with his pfennig (Germany's
equivalent of pennies) that he can instantly recall the number of
kilowatt-hours of electricity that the family uses each month -- 260
on average, vs. 704 for the typical American household. The Hagels'
only debts are two mortgages on their home totaling $116,000. Such an
aversion to consumer loans is common in the former West Germany,
where the average household carries only $1,290 in personal
nonmortgage debt.
The Hagels' high savings rate isn't entirely a result of
parsimony, however. In part, they and other Germans can sock away so
much because they spend so little on essential elements of the good
life that many Americans pay dearly for, such as a college education
and health care. Even so, their taxes are relatively low.
A case in point is Peter's 11-year university education, which was
free. Like only a third of German high school students, he managed to
pass rigorous, weeklong written and oral examinations to qualify for
college in 1969. Six years later, after finishing Marburg University,
Peter's academic talent in the sciences and fluency in English helped
him win a full postgraduate scholarship to Penn State University,
where he earned a doctorate in biochemistry in 1982. Unusual? Hardly.
Last year, foreigners earned 22% of the Ph.D.s that were awarded by
U.S. universities.
Peter returned to Germany in 1982 and has worked ever since for
Laboratoire Labothene, a privately owned cosmetics manufacturer in
Pforzheim, an industrial city of 108,000, seven miles northeast of
tiny Salmbach (pop. 900). He now pulls down a pretax salary of
$63,773 a year.
Peter met the slender, athletic Barbara in 1984 on a hiking trip.
They married after Christian's birth in 1987. Barbara, who didn't
attend college, took a federally mandated 12-week maternity leave
from her bookkeeping job for ) a tobacco wholesaler at 90% of her
after-tax pay. (Under current law, German mothers may take a 14-week
leave at full pay.)
For another three months (six under current law), Barbara
collected $348 a month in Erzeihungsgeld (literally, child rearing
money) from the federal government. By law, she was guaranteed to get
back her old job or a comparable one if she returned to work, but she
stayed home instead. ''It's very important for me to be with my
children all of the time,'' she says. ''Even if I wanted to work, it
would be difficult because it's hard to find adequate day care for
small children in Germany.'' Only 2% of German children ages three
and under (vs. 20% in the U.S.) are in day care.
Christian's birth motivated the Hagels to give up their
one-bedroom, $209-a- month apartment in Pforzheim to buy a house in
the country. Their move was atypical in the former West Germany,
where, partly because of high housing prices, nearly two-thirds of
all households rent, instead of own, their dwellings. The Hagels paid
$220,400 for their 14-year-old, 1,830-square-foot stucco home. The
house, which is roughly the same size as the average U.S. home, sits
on a modest 6,243-square-foot lot (about a seventh of an acre). Peter
now estimates the place is worth around $245,000. Although far from
luxurious, it does have some gracious touches, such as a basement
recreation room, two sinks in the main bath, two powder rooms and a
decorative but functional ceramic-tile woodburning stove in the
dining room.
Financing their purchase wasn't as simple for the Hagels as it is
for the average American with access to fixed-rate, 30-year
mortgages. The couple put down 34%, or $75,400, which included
$29,000 in gifts from their parents. They then got two bank loans.
The first, for $75,400 at 6.1% for five years, comes due next April
when they must pay it off or renegotiate its rate. The second loan,
for $69,600 at 5.9% for up to four years, required them to pay back
interest only until the principal was due in a balloon payment in
1990. They saved assiduously to pay off the second loan last summer,
when they qualified for a $40,600, 11-year mortgage at 5% from
Barbara's Bausparkasse, which is comparable to an American credit
union. Their monthly payments now total $1,276.
Using cash from the $78,300 they have socked away -- which is
fully five times more than the average household in the former West
Germany has in savings -- the Hagels plan to pay off most of the
$75,400 mortgage that comes . due next year.
Their strategy makes eminent sense, because mortgage interest is
not tax deductible in Germany. The Hagels can, however, deduct 5% of
their home's purchase price up to $174,000 during each of the first
eight years that they own it. The Hagels' annual write-off -- which
includes a $2,784 tax credit for their children -- amounts to
$11,484, or $91,872 over eight years.
Like the savings of most Americans, who keep roughly 65% of their
assets in fixed-income instruments, the Hagels' are deployed
conservatively. They've got $53,360 in taxable government bonds
paying 9%; most are scheduled to mature nine days before the mortgage
comes due. They've also stashed $10,440 in one- to three-month bank
certificates of deposit earning about 6.75%, $2,900 in 3% bank
savings accounts and $11,600 in mostly blue-chip stocks. Peter's
investment in stocks, which he makes through an investment club
sponsored by his bank, marks him as more adventurous than most
Germans, only 6% of whom own shares. If Peter picks winners and holds
them for at least six months plus one day, he won't be taxed on his
capital gains.
The Hagels find it relatively easy to save because they have no
interest in designer clothes, chic home furnishings or status-symbol
cars. Most of the Hagels' furniture is hand-me-downs from Peter's
mother, who lives 75 miles away in Gross-Rohrheim. As for their
transportation, Barbara drives a new two- door Renault Clio
($10,440); Peter, a nine-year-old GM-made Opel Kadett with 77,700
miles.
The Hagels are also frugal food shoppers, spending only $290 a
month, or 5% of their income. By contrast, German and American
families comparable to the Hagels in size and affluence spend about
twice that much of their income on groceries, according to Runzheimer
International, a relocation consulting firm in Rochester, Wis. The
Hagels' freezer is filled with vegetables grown by Barbara's parents,
who live 100 miles away in Gottmadingen. Peter's mother contributes
berries, plums and apples from her yard.
The Hagels' taste in leisure activities is likewise simple and
inexpensive. Instead of following their more spendthrift countrymen
to beaches on the Canary Islands or the French Riviera, they prefer
to hike in the Alps or visit less glamorous North Sea resorts. Last
year, Peter spent five days of his six- week annual vacation camping
with Christian in France. Total cost of the trip, including gasoline:
$145. Peter, his mother and Christian also took a ) weeklong train
trip to St. Peter-Ording, a German resort on the North Sea. There
they rented a three-room apartment and spent just $520.
What does the future hold for the Hagels? No doubt more of the
same unostentatious prosperity they now enjoy. Should one of them get
sick, Germany's national health insurance plan will pay virtually all
of their private doctor and hospital bills. Peter pays $170 a month
to cover his family (6% of his salary up to $2,828 a month); his
employer kicks in the same amount.
The Hagels' retirement promises to be comfortable too, even though
Peter, like 58% of German and 54% of U.S. workers, isn't covered by
an employer- sponsored pension plan. He will, however, be able to
cash in a company-paid $23,780 whole life insurance policy at age 63.
In addition, Germany's social security system is considerably more
generous than that of the U.S. Peter will collect about $15,300 a
year in benefits, or 24% of his current income, starting at age 65.
The most he could collect in the U.S. would be $12,264, or 19% of his
pay. Based on her previous earnings, Barbara will receive about
$6,260 a year.
As you would expect, Germans pay higher social security taxes than
Americans do. Peter contributes $3,617 a year, or 9.35% of his salary
up to $38,700 a year; his employer chips in the same amount. Workers
in the U.S. pay 6.2% of their income up to $53,400 a year, also
matched by their employers.
Yet the Hagels' total tax burden of $12,911, or 20% of Peter's
salary, is hardly onerous, especially since Germany's well-knit
social safety net makes America's look awfully moth-eaten. The Hagels
paid $8,470, or 13% of Peter's salary, in federal income tax last
year, no city or Land (the German equivalent of state) income taxes
and just $174 a year in property tax. Their taxes will rise next
year, though, when a 7.5% surcharge is applied to their federal
income tax bill to fund the economic rescue mission in the former
East Germany.
The Hagels do face a stiff national sales tax, or value-added tax
(VAT), of 14% on most goods, with the notable exception of food and
books, which are taxed at 7%. The Germans also pay church tax, which
is used to finance civil servant salaries for ministers and priests.
The Hagels' tab is $650 a year. You can dodge the church tax if you
get a letter from your spiritual leader certifying that you've left
the flock, but few taxpayers request the letter. Says Peter, a
churchgoer whose late father was a Protestant minister: ''Most /
people continue to pay the tax because they want a church funeral.''

Despite some obvious incongruities -- such as church taxes and
free colleges -- Peter feels that his family's lifestyle wouldn't be
that much different had he stayed in the U.S. after earning his
doctorate. ''Here we're not exactly rich, but we're content,'' he
says. ''Our situation would probably be similar in the States.''

BOX: WHAT THE HAGELS EARN AND SPEND

The Hagels saved a prodigious 27% of their income over the past
year, principally so they can pay off a $75,400 mortgage that comes
due next April.

INCOME (in U.S. dollars)
Peter's salary $63,773
OUTGO
(in dollars and as a percentage of income)

Savings $17,400 27%
Housing 16,910 27
Taxes 12,911 20
Transportation 4,362 7
Groceries 3,477 5
Personal and
miscellaneous 3,007 5
Health care 2,040 3
Entertainment
and vacations 1,642 3
Life insurance 1,364 2
Clothing 660 1
TOTAL $63,773 100%

HOLE YARDS PAR R1 R2 R3 R4
OUT
HOLE YARDS PAR R1 R2 R3 R4
IN
Eagle (-2)
Birdie (-1)
Bogey (+1)
Double Bogey (+2)