Learning About Global Finance in France

Back in Paris and ready to get the new year going, I spoke Saturday to a group of global finance graduate students of the Carlson School of Management of the University of Minnesota.  They were here on a week-long trip of discovery before heading to London for even more. I agreed to do the talk at the request of one of my daughter’s high-school friends, Bastien Gueit, who had been recruited by the school to manage the on-the-ground logistics. I couldn’t say no to Bastien with whom I’d had a long-standing and adoring relationship, nor to the task of educating American students on finance in France. It was in fact, a privilege.

To add to the event, I recruited Brian Dunhill, of Dunhill Financial, to speak to the group via Zoom. I knew that he would have more important things to add to the discussion than me. It must be that he didn’t want to say no to me, because for him the time was 2 a.m. in the morning, while he was currently spending some time in Sydney, Australia. (Normally, Brian is in London where the time difference would have been just one hour.) In order for us to manage this, we set up the Zoom meeting from our location at Café de la Mairie on rue de Bretagne, used a projector to display Brian on the wall, and added a Bluetooth speaker so everyone could hear him. We also recorded the event in its entirety.

In advance of the talk, I spent some time thinking about what global finance students might want to hear from someone like me. Then, it came easy…because I realized that they might like hearing the perspective of an Expatriate, and how we are affected by living our lives in another currency. There is actually tons to talk about!

Here are some of the excerpts you might find of interest:

The most important lesson you will learn today is that France, and most of Europe, does not view money the same way as the US. There is a long history that explains their aversion to money that dates back to the French Revolution! But, understand that France is a Socialist Democracy, and is not a Capitalist culture. The word “Capitalism” in France is as misunderstood and disliked as the word “Socialism” in the US.

As a result, France has a big safety net—there is a larger middle class, fewer poor and fewer rich than in the US. Both lower and higher education is provided free of charge. Up to 70% of all medical care is paid for by the State. Your employment in France is secure.

Money is a very private matter. Money is almost never spoken about. The subject of money is taboo. And wealth is not something to show off . . . those who do are labeled as the “nouveau riche.” Showing you are wealthy is not considered classy. Aspiring to make money is not classy. Ex-president Nicolas Sarkozy, a man who enjoyed wealth and luxury, was nicknamed the “bling-bling president“ by French people who considered his enthusiasm for money unsophisticated. Emmanuel Macron has been labeled the “president of the rich” because of his policies to try to bring the wealthy back to France. However, the younger generation seems more open to discussing money and income— perhaps due to contact with other cultures and foreign people.

An exchange rate is a rate at which one currency will be exchanged for another currency and affects trade and the movement of money between countries. Exchange rates are impacted by both the domestic currency value and the foreign currency value. Reported rates differ bank-by-bank and minute-by-minute. Rates for buying a currency differ from rates for selling a currency. The difference is called “the spread.”

At the time of our talk 1.00 US dollar equaled 0.93953651 Euros and 1 Euro equaled 1.06435 US dollars.

The best way to exchange currency: for large amounts, work with currency brokers who specialize in currency conversion. They are regulated like a bank, but that is all they do. Their fees are normally about 1% compared to the banks at about 3%. In essence, one’s money is sent to the broker in one’s own currency and the broker converts it and forwards it to a recipient in a different currency. For small amounts, an ATM using a debit card is normally the least expensive and easiest way to convert currency when traveling. There are limits to how much can be extracted in any given day, usually about a $500 value.

(We recommend the following currency brokers)

France does not live on credit and does not have a credit card culture. The French banks will call them “cartes de credit,” but they are almost always debit cards. The money is extracted from your account either immediately or at the end of the month, as you choose. When a credit card is used to extract cash, the bank will charge interest on the amount advanced until it is paid, while a debit card extracts cash directly from your account. Also, credit cards can have foreign transaction fees which vary from 1% to 4%.

Expats are used to doing online banking. Within 48 hours a foreign transaction will appear on your account so you’ll know what rate of exchange you’re getting. We can pay bills and transfer funds between accounts within the same bank. The French banks provide online service, but at a small monthly cost while U.S. banks provide it free of charge.

The second most important thing you’ll learn today is that Americans are now undesirable customers all over the world!

Foreign Account Tax Compliance Act (FATCA)

The Foreign Account Tax Compliance Act (FATCA), which was passed as part of the HIRE Act (2010), generally requires that foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on withholdable payments. The HIRE Act also contained legislation requiring U.S. persons to report, depending on the value, their foreign financial accounts and foreign assets. (FBAR reports)

Getting a bank account in France is not as simple as it is Stateside, where friendly account managers sit waiting at their desks to welcome you. To make an appointment, you must call or stop into the branch and request to see an account manager. It is best to have a “sponsor” call for you or make the referral.

(We provide this service for our clients.)

Banks in France prefer to establish a solid relationship with a customer that will lead to the provision of more services and can make subjective decisions on whom they want as customers. They claim they don’t make money from holding your money, but from the services they offer: insurance, phone service, etc. Getting an account first depends on if the bank welcomes American customers. Then, one must be introduced to the bank by another customer or respected introducer.

The banks watch every penny that goes in and out of your account. Cash transactions are suspicious as tax evasion. It is very important to establish a proper relationship with a bank. Money is NOT what talks in France…but trusting and honorable relationships do. If you attempt to show your clout by how much money you will deposit in their bank . . . you are likely to fail! Accounts are opened without a single centime.

Depending on the bank’s policies, checking accounts and checkbooks can be free or charged. The banks charge monthly fees for the privilege of having an account and charge for providing a debit card and access to their online banking platform. The Carte Bleue is a debit card, as the funds are extracted from your checking account automatically. There are no outstanding balances and no interest is charged. It can be used to make purchases or extract cash from your account at any ATM—with a four-digit Personal Identification Number (PIN) rather than a signature. Bouncing a check is illegal in France and is subject to fines. Your account could be frozen and drastic measures could be taken which could deny you the right to a checking account for years…regulated by the Banque de France.

To wire funds from a U.S. dollar account, you will be asked for your account number along with a “Routing Number,” or “ABA Number.” A European bank uses a different set of numbers—an International Bank Account Number (IBAN)—an internationally agreed system of identifying bank accounts across international borders. Each bank also has a unique SWIFT code. It usually consists of 11 characters divided into four groups.

In France, their system of banking numbers is recorded on a Relevé d’Identité Bancaire (RIB)—a system for automatic debit from your account. Utility and phone companies prefer that your bills be paid automatically in this way. The RIB consists of the “Code Banque,” “Code Guichet,” “Numéro de Compte” and “Clé RIB.” In effect, the numbers equal an IBAN. When you provide this number, you can authorize the debtor to extract the funds from your account.

The good news is that obtaining a mortgage here is possible . . . but very difficult for Americans, thanks to FATCA. Going directly to a commercial French bank as a non-resident is useless. Unless you have a regular salary going into a French account, they tend not to be as interested in dealing with foreign clients, but there are a few banks set up particularly to work with non-residents.

Loans in France are based on your income, not your assets, and the monthly amount of the mortgage cannot be more than one-third of your monthly income. The banks prefer salaried individuals over self-employed. And age is a factor—rarely will a French bank finance someone over the age of 60. You can obtain financing for 10, 15, 20 or 25 years (not often for 25!) at variable or fixed rates (depending on your age up to 75) and interest-only loans are being made available.

Lenders base their rates on the Euro Interbank Offered Rate (Euribor) —the rate at which euro interbank term deposits within the euro zone are offered by one prime bank to another prime bank. In the long term, the France interest rate is projected to trend around 3.50 percent in 2023 and 2.75 percent in 2024, according to our econometric models—about half of what the rates in the US are.

There is normally a small origination fee of approximately 1% or less and a life insurance policy attached to the loan is mandatory to insure completion of payment. There are no pre-approved loans—it is not until a property is committed to (having signed a “Promesse de Vente” or “Compromis de Vente”) that the lender will formally submit your application for approval by the committee.

The US has citizenship-based taxation—one of only two countries in the world. As a US citizen, you will always be liable to Uncle Sam. Some Americans are considered “Accidental Americans”—someone whom US law deems to be an American citizen, but who has only a tenuous connection with that country. Americans must always submit a tax return even if having earned nothing in the US.

France has residency-based taxation. The tax treaty with the US is designed to minimize inconsistent and double taxation, however it’s not foolproof.

French income tax has several income brackets, each of which has a different tax rate, which varies from 0% to 45%. French social security contributions are shared between employer and employee; on average the employer’s share of contributions represents 45% of the gross salary. For 2022, the employee’s share of French social contributions represents approximately 20% to 23% of the remuneration. (I am self-employed and therefore my social charges are 45%!)

Property taxes are about 1/10th of what they are in the US—about .001% of the value of the property…but closing costs on a property are considerably higher—7 to 7.5% of the price of the property. Property has a built-in negotiation of about 5%. The seller is morally obligated to accept the asking price. Therefore there are no bidding wars and prices do not become inflated. Agency commissions are about 5%. There is no MLS in France, so real estate agents have only their own listings to sell. (It’s why I have a job!) Agencies do not normally share their commissions with other agencies.

Of course, what you just read were my notes and I was able to expand on each of the ideas. That’s when I stopped and opened the floor to questions. The students had a lot of very intelligent questions to ask—it seems they were legitimately interested in the topic and not just there half-listening because they were expected to attend.

What they asked me was:

How did I end up in France?
Did I speak French before I came to France?
What kinds of Americans move to France?
What is the real estate market like in France?
Why is there so much graffiti in Paris?

And a few other comments and questions.

My driving point, throughout the presentation, was that “life is not about money!” Which is a funny thing to tell finance students…but I really wanted them to understand that we have a better life here because of it.

Brian took over after one hour with me. His perspective was naturally very different from mine as a professional in global finance, and added a much higher level to the talk.

If you wish to watch any of the recording, it’s just a click away.

Please keep in mind that recording Brian’s portion on an iPhone wasn’t ideal for the quality of the audio and you can’t hear the students’ questions because they didn’t have a microphone as I did…but you can get a good idea of what the session was like. And it was a whole lot of fun!

Thanks to the Carlson School of Management for the opportunity to speak to their graduate students.

A la prochaine…