The conversations around the family dinner table during the market turmoil caused by Trump’s tariffs were likely very different in the US and the EU. In the US, families worried about falling retirement savings. In the EU, the focus was more on geopolitics.
Education and upbringing
US citizens hold most of their wealth in financial markets, while EU citizens have the bulk of theirs tied up in their primary residence. In the EU, children are taught the value of homeownership. In the US, the emphasis is on investing.
Whether or not parents talk to their children about investing strongly influences how those children handle money as adults. American children receive far more financial education, both at home and in school, than their peers in the EU.
As a result, US households allocate around 70 percent of their wealth to financial assets, compared to just 25 percent in the EU. Most EU households have their capital locked into property.
Reaction to market fluctuations
So, when Trump’s tariffs triggered a market downturn, American families panicked as the value of their 401(k)s and IRAs dropped sharply. European families stayed calm; real estate prices, where most of their wealth sits, remained unaffected.
Does it really matter that US and EU citizens invest so differently?
Absolutely. And here’s why:
1. Capital efficiency
US citizens put their capital to work in productive assets. Their savings are channelled into pensions, mutual funds and the stock market. This provides companies, including start-ups, with funding that allows them to take risks, innovate, hire and grow.
In the EU, most citizens have their wealth tied up in their homes, which are generally not productive economic assets. Because this capital is illiquid, there is also less funding available to EU firms seeking investment.
2. Impact of monetary policy
When the Federal Reserve adjusts interest rates, whether up or down, it triggers an immediate reaction in financial markets. As US citizens are heavily invested, they quickly feel either richer or poorer, driving changes in consumption and investment.
In the EU, interest rate changes by the European Central Bank have a more muted effect. Citizens might adjust spending if their mortgage payments change, but stock market movements barely register.
3. Economic inclusion
When the US economy is performing well, stock markets rise, and citizens across the country benefit through their investments. This broader inclusion helps deepen capital markets and further boost economic performance.
In contrast, EU citizens are mainly exposed to real estate, which is illiquid and harder to monetise during price increases. Because property values rise most in already desirable areas, real estate tends to widen economic inequality.
If we are serious about financing the EU economy and making it more dynamic and inclusive, we need to tie citizens’ economic fortunes to the pulse of financial markets, not to the slow, illiquid and unproductive housing market.
Gregory Kennedy is a columnist for Investment Officer Luxembourg. His columns appear every other week. He also works as a business development manager at Finsoft Luxembourg.
