For U.S. Middle Class, Neither Savings Nor Safety Net

Danes may be broke, but they can afford not to stress about the future.

Photographer: Freya Ingrid Morales/Bloomberg

Danes may be broke, but they can afford not to stress about the future.

For those who remember the mortgage abuses of the U.S. financial crisis, here’s a shocking statistic: 56 percent of Danish home loans are interest-only for as long as 10 years. That’s a vastly higher share than all the flavors of negative amortization or “pick-a-pay” loans that have now disappeared from the U.S.

That data comes from a story by Bloomberg’s Frances Schwartzkopff, who has exhaustively covered the saga of Danish debt. This blog has touched on that before, in this post about how thrifty Northern Europeans are actually far more indebted than the citizens of economically troubled countries like Italy, Spain and Greece.

To bring this back to the U.S., though, when you talk about wealth and debt in countries like Denmark, you need to remember that residents of most Western countries need a lot less in savings than Americans. Other countries — and Denmark pretty much heads the list — have a much tighter social safety net. That means less savings needed for emergencies, less for education, and much less for retirement.

If you’re trying to understand where the U.S. middle class fits in comparison to the rest of the world, any calculation that leaves that out is misleading. Make no mistake: The U.S. does not do well in median wealth calculations compared to most countries. Though a couple of years old, this post from Dylan Matthews addresses the issue well. The U.S. ranks third-to-last in median wealth in a list of 19 wealthy countries.

The only ones below the U.S.? Sweden and Denmark, which have famously comprehensive government income supports. On the other hand, countries that rely largely on individual savings (Australia, Italy, Japan) are way higher in the median wealth ranks. And more of the wealth is held in middle-class savings, less in housing: In Australia, 56 percent of household wealth is kept in retirement accounts and pensions, versus 27 percent in the U.S.

In other words, the median Dane can rely on the government. The median Australian has a healthy retirement account. The median American has neither.

An earlier version of this post appeared in the Market Now daily email. Click here to register and subscribe. Or here to follow @markgimein on Twitter.

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