Advanced Personal Finance

The personal savings rate is one of those topics that comes up occasionally in the media that always stokes discussion. The U.S. personal savings rate has hovered around 0% for several years now. There’s a lot of argument about what, exactly, that means.

Some people argue that the calculation of the savings rate is flawed. It doesn’t count the capital gain on assets, for example. So someone who sells shares in their mutual fund and spends the money has a ‘negative savings rate.’ Others say the number actually understates the lack of saving in the U.S.

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I’ll leave those arguments to others. Frankly, I don’t much care about the details. The plain fact is, Americans are selling assets and taking on debt to finance their lifestyle. We just don’t save enough as individuals or a nation.

Americans’ attitudes about saving are markedly different than that of people in other countries. Check out this quote from the Christian Science Monitor:

Mr. Xu, who pulls in $266 a month – below Beijing’s $400 average – is typical. He socks away one-fourth of his pay packet, as does Chen Ping, his girlfriend, who makes a similar wage as a store assistant. Asked if he isn’t tempted to save less and spend more, he shakes his head.

“If we enjoy life now, what about the future? We need to think of our future,” he says.

The rising cost of living is one reason why many here are reluctant to splurge in fancy malls. Unlike US consumers, many of whom use credit liberally, Chinese workers opt to save, knowing that a feeble welfare system is unlikely to provide for them.

This guy, a mechanic, saves 25% of his salary. Twenty-five percent! Can you imagine what an American would say to the suggestion that he or she save 25% of his or her income?

I also thought the last part of the quote was telling. Chinese workers, assuming their welfare system won’t be in place when they need it, are saving like crazy. U.S. workers, who also widely believe Social Security will not be there for them, seem to be crossing their fingers and hoping for the best while they go about their consumerist ways.

I’m not saying the Chinese have it all figured out. But it seems clear to me that America is facing trouble ahead if it doesn’t start saving and investing more.

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This entry was posted on Wednesday, August 29th, 2007 at 8:02 am and is filed under Media, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.