A BBC documentary I was watching recently served as the impetus for this post. The documentary was discussing education, productivity, consumption, and the savings rate in China as compared to Western nations, primarily the United States and the United Kingdom.
The one topic that really jumped out for me was the savings rate in these countries. A quick note, a household’s disposable income is the difference between a household’s total income and the amount available for savings and consumption (the money spent on goods and services) after taxes have been paid.
Therefore, the savings rate would be the percentage of total income that is saved/invested after taxes are paid; and money is spent on goods and services. With that as the backdrop, we can further state that since we have very little control over taxes, a household’s savings rate will be largely be driven by their appetite for consumption. The more that is consumed, the less that will be available for savings.
In “man on the street” interviews in the U.S. and U.K. most of the respondents indicated that they were essentially living paycheck to paycheck, saving very little. Conversely, the Chinese respondents indicated that they were saving anywhere between 30 – 50% of their income.
Why the high savings rate? Most of the Chinese indicated they wanted to save for their children’s education and they also noted the lack of a social security net. In other words, their attitude was that they are on their own and they would need to save to attain financial security. Does that suggest that one of the reasons Westerners save significantly less is because there is a belief that they can spend today – vice saving and investing more – with the knowledge, or belief, that a social safety net will catch them should they fall?
The documentary prompted me to do a little research on savings rates to see exactly where we stand here in the U.S. Also, I took a closer look at where my own household stands…about 39% as it turns out.
Source: OECD (2013), “Household saving rates – forecasts”, Economics: Key Tables from OECD, No. 7. doi: 10.1787/hssv-gr-table-2013-2-en
And in China…
Source: National Bureau of Statistics, Flow of Funds data and Urban and Rural Household Survey.
As you can see from the two charts, the savings rate (past and projected thru 2015) in the U.S. averages 5.1%. Compare that to China where the savings rate in the last year, 2009, is just under 30% in the Combined Urban and Rural Surveys.
My guess is that there are a number of reasons for this significant differences. As I touched on earlier, a different perspective on safety nets, or lack thereof, is probably one reason.
What do you believe may be more reasons why Chinese save significantly more than Americans? How about you SavvyReader, what is your savings rate?