The Real Reason Most Europeans Don’t Invest

by Andrew Hallam, Personal finance best-selling author

In 2014, my wife and I began vagabonding around the world. It’s not a lifestyle that would suit everyone. But we love it.  We backpacked through Vietnam, rented a villa on a Malaysian island, stayed in the mountains of Thailand, cycled around Europe and Costa Rica on our tandem. We also spent 17 months in a camper van, exploring Mexico and Central America.

I was 44 when the journey began. I’m now 54, and we’re still going.

When we first meet people, we don’t immediately share that we’ve been traveling for a decade. But they soon figure out we have plenty of free time. North Americans often ask, “Are you guys retired?”  In contrast, when we meet Europeans, they never ask this. 

Never.

They ask something like, “Where do you work?  It’s so great that they give you so much time off to travel.”

I’m not basing this on a handful of encounters. I’m a social guy. My wife says I’ll even talk to a fire hydrant. After ten years of travel, we’ve met hundreds of people.  And it’s always the same.  North Americans assume we retired early, or that we’re working online. But Europeans never imagine that we have enough money to retire.

Few Europeans can retire before they’re old. They need to wait for government pensions.

I wanted to find out why.

And it didn’t take long.

Europeans don’t invest.  Some do, of course.  But the vast majority do not.

Let me back up a moment.  Assume a 22-year old set aside €27 a day to invest. They put that money in a globally diversified portfolio of stock and bond ETFs. That’s not a lot of money. But by the time that person reached 52 years of age, their money would have grown to €1.34 million if they averaged 8.5 percent.

The worst 30-year return for US stocks saw an average of 8.24 percent per year, from 1929-1959. So, a return of 8.5 percent is not out of the question. That’s roughly what I earned on a globally diversified portfolio of stocks and bonds from 1989 to 2024.

Most North Americans invest in the markets. Doing so allows their money to grow far faster than inflation.  Most Europeans, in contrast, stuff money into savings accounts. Their money doesn’t beat inflation.  And if it can’t beat inflation, they can’t retire early.

For example, a 2023 survey of Consumer Finances says 58 percent of American households invest money in the markets. According to a 2024 Ipsos poll, 52 percent of Canadians add money to an investment account every year. But only 25 percent of Germans do the same.

Eurobarometer surveyed Europeans to test their financial literacy. The Dutch scored highest.  Yet, according to the Dutch Authority of Financial Markets, only 22 percent of Dutch households invest money in the markets.

That mirrors the low investment rate by Europeans on the whole.

One reason could be a blind spot in their financial literacy. Eurobarometer’s surveyed test shows that only 18 percent of Europeans have a high level of financial literacy. Most save money. But they stuff it into savings accounts.  A shocking number of Europeans don’t realise that, by doing so, they typically lose to inflation.

One of the survey questions asked:

“You are going to be given a gift of €1000 in one year, and over that year, inflation stays at 2 percent. In one year’s time, would that money be able to buy more than it could buy today, less than it could buy today, or the same as it could buy today?”

Thirty-five percent of European adults got this question wrong. That’s scary.

If inflation were 2 percent over the year, that €1000 would buy fewer goods or services in one year’s time.

Among the Europeans who invest in the markets, most do so badly. How do I know?  Walk into a European bank.  Ask them to invest for you. They will typically sell you an Investment Linked Assurance Scheme.

These are among the world’s worst financial products. They charge huge hidden fees, far more than virtually any North American-based scheme. When Europeans invest, it’s common for them to pay fees of 3 percent per year, or more. 

That should be against the law.

Here’s an example of how a 3 percent annual fee scuttles an investment.

€10,000 invested at 8% over 40 years grows to €217,245.

€10,000 invested at 8% (minus a 3% annual fee) grows to €70,399.

How do European banks get away with this?

The answer is simple. Financial literacy, especially when it comes to investments, is low. So banks will sell what they can get away with selling.

Meanwhile, with a globally diversified portfolio of ETFs, investors could pay as little as 0.2 percent per year in annual fees.

When will I know that things are changing for Europeans?

Perhaps when they start asking me (before I get too old!), “Are you retired?

Andrew Hallam is a Digital Nomad. He’s the bestselling author Balance: How to Invest and Spend for Happiness, Health and Wealth. He also wrote Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas

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Please note the value of investments can go down as well as up, and you may not get back all the money that you invest. Past performance is no guarantee of future results.