Thursday, August 5, 2010

How Much Do You Make?

First of all, this question doesn't get brought up very fast in Italian conversation. As an American, I was used to hearing this question asked much more often. We are internationally famous for how much we talk about money.

But when money matters do come up in Italy, the way to interpret them differs radically.

In the US, we talk about earnings in terms of yearly gross sums. For example, Jenny makes $45,000 a year. Meanwhile Italians cite their net monthly income. Giovanna might say,"I earn Euro 1200." That means she makes Euro 1200 a month net, after taxes and INPS (Italian Social Security).

This really small amount shocks Americans. But although it is true that the average Italian makes much less than her comparable American colleague in the same job and position, some pieces of the puzzle are missing in this statement of earnings.

What the American needs to realize is that the Italian, if she has a full-time contract, gets paid in 13 or 14 "monthly" installments within the 12-month year. You might be asking how this is possible now. Well, she gets paid a double salary in December (13th month) and even August (14th), depending on the contract. Essentially she gets big lump sums just in time for the major holidays. It helps pay for Christmas gifts and August rent at the beach. Those extra 2 months salary add 20-30% to annual income overall.

How can Italian employers get away with paying their people so little? Partially this is due to the huge taxes paid for each official employee. To pay someone Euro 1200/month, the company may be paying the government an additional Euro 800-1000 in income tax and INPS contributions. The country's heavy tax burden almost entirely lies on the shoulders of employees who declare their salary. Their earnings get mightily taxed because so many other Italians are not declaring their income and subsequently avoid paying taxes on it. There are plenty of examples of doctors, plumbers, gondoliers and shop owners who declare Euro 18000 annual gross income while they are actually pocketing over Euro 100,000. This feeds Italy's continual frustration with the tax burden of honest citizens and the idea of fairness for everyone in the Repubblica.

It's true that Italians can survive on less because so many do not have a mortgage to pay. They are living in family homes, perhaps left by a deceased grandmother, or one purchased by their parents with a lifetime of savings. Since Italians don't have to spend very much on putting their children through college, funded publicly, they squirrel away savings to put toward real estate. If one family cannot give their child an entire house, sometimes they split the expense 50/50 with the future son-in-law's family. Italy has the largest per capita home ownership statistics in all of Europe. They avoid paying rent as much as possible by living with mamma and papĂ  until they get married and then they buy many properties cash-in-hand, maybe with their parents' money.

On the flip side, this tradition makes life more complicated when you ask for a mortgage, like I did recently. The banks are extremely cautious, especially in light of the American fall-out.

This is a classic example of how everything gets interpreted uniquely based on the culture. Society colors how we think about money and spend it. There are several layers to every question and answer, based on where we come from.

No comments:

Post a Comment