Credit-card companies woo few Germans

For a few fleeting months last year, Richard Klein binged on furniture and a fancy stereo - thanks to his newly acquired credit card.

"But then the bill came and the money was gone," says Mr. Klein, who tossed out the plastic card after his bout with debt. "It's better to keep track of what I've bought," concludes the retired salesman.

Despite record-low interest rates and a credit spree sweeping across Europe, Germans are shunning the lure of credit cards - the result, many say, of a German pragmatism made more acute by uncertainties about the country's generous social model.

"The Germans have a different consumption mentality: They don't get into debt," says Hubertus Pellengahr of the German Retail Association in Berlin.

Throughout Europe, credit cards have changed people's habits over the past decade. England, dubbed the "plastic nation," has the most developed credit-card market in the world after the United States, which has more credit cards than inhabitants.There and in France, people are used to dipping into the red to pay their bills. Credit cards have also been making great strides in Hungary since their introduction in 1999.

Not so in Germany. The German Retail Association estimates that credit cards are responsible for only 5 percent of goods purchased here annually, compared with 13 percent around the globe. It's not that Germans don't like plastic cards. But Germans use them mainly to substitute cash, not for long-term borrowing.

"When I want something I pay for it myself," says David Hausen, a senior in high school. "It's a question of honor."

At heart, the unpopularity of credit cards is rooted in pragmatism. Unlike debit cards, which are free, credit cards are viewed as expensive - both for shopkeepers and customers.

"The German are sort of spoiled: They're used to relatively low cost for money transactions," explains Kerstin Aldendorf of the German Association of Banks in Hamburg. "They don't want to pay for services they don't need."

The only retail stores to make a profit in Germany - Aldi and Lidl - accept only cash or debit cards. The discount stores have kept ahead thanks to a strategy based on speed and low costs, say experts.

"At Aldi, everything has to go fast," says Ms. Aldendorf. Credit cards would postpone the arrival of money into Aldi's coffers, thereby lessening its competitive advantages.

This reluctance to borrow is also rooted in history. The great inflation of the 1920s, when prices doubled in a day and the middle class saw their savings wiped out, instilled in many Germans deep caution toward borrowing money.

Decades later, the deutsche mark stood as a concrete proof of a reunited Germany after the turmoil created by the Berlin Wall, making paper money especially dear to many. "For a long time, the Germans held the deutsche mark as a proof of normality, something that held them together," says Mr. Pellengahr of the German Retail Association.

"I have to feel paper money in my hand," says Mathilde Kuara who, at close to 60, still doesn't own a credit card. "Not everything that's new is good."

Some banks, such as Citibank, see Germany as a great potential market for credit cards, says Citibank's Ruediger Stahlschmidt.

But such efforts come at a time of rising uncertainty over the future of the country's generous welfare state. "People are aware that they have a major problem with their retirement pensions [and] health insurance - they know that they're going to have to contribute more," says Pellengahr. "That makes them insecure."

A sluggish economy has pushed the number of families and companies in the red up just as credit institutions have become more careful in granting credit, says Paul Schmidt, an economics professor at the Frankfurt bank academy.

For the first time this year, more individuals than companies filed bankruptcy, a sign to Mr. Schmidt that more low-income families are being left with no option but to use credit. But Schmidt also sees it as a sign that more consumers, lured by attractive credit offers, underestimate the costs of paying back their credit-card bills, with interest.

Experts caution that it's all the more crucial to help people better manage their money so that Germany doesn't repeat the experience of the US, where recent studies show that people ages 25 to 34 account for the second-fastest growing percentage of bankruptcy filers, just after those ages 35 to 44.