Comparing Savings Rates: U.S. vs Japan

by Silicon Valley Blogger on 3 February 2010 6 comments
Photo: skodonnell

Over the past 3 years, we Americans have seen an interesting shift in our economic and social patterns. First, we’ve seen credit card use decline, not by any conscious choice made by spenders, in a lot of cases. Credit card companies have rejected a good number of applications, and have even decided to cancel the accounts of existing cardholders due to single late payments, credit risks not associated with their products, and higher-than-ever credit qualifications.

For instance, while balance transfer credit cards do exist, they are no longer the fad they once were, and have lost some favor with credit hungry consumers, given the stricter requirements and stipulations they now have that govern their 0% APR offers. Combine all this with higher than ever interest rates on many popular credit cards, and guess what? We get people who want to start saving money again. While this may be simplifying things, it seems that as credit card companies began to shift their policies in response to a tighter credit environment, Americans have reacted by tightening their belts and adjusting their spending. The economic recession and subsequent changes in the credit industry have resulted in a silver lining; these changes have had an effect on consumers, even encouraging many of them to shun credit card debt and to avoid using credit cards as a lifestyle choice.

The American Way

In real numbers, there is proof that our attitude towards money has changed. In particular, we have begun to save money to the tune of 5%-7% of our disposable income. Check out this graph, which illustrates the increase from 2007 to now, according to research done by the Bureau of Economic Analysis.

If you’ll notice, the 2nd quarter of 2009 shows the American savings rate lingering at 5%, which is higher than the rate registered at any other time in the last 5 years. That’s a pretty noticeable shift in savings (and consequently, spending) when you consider the fact that many Americans had little to no savings 5 years ago, and relied heavily on credit cards. This is happening despite the current dismal returns of many so-called high interest savings accounts these days — especially when you're lucky to get 2.00% to 3.00% on certificates of deposit.

How Is Japan Doing?

Meanwhile, there is a different and opposite trend going on across the ocean that is completely contrary to our current patterns, yet similar to our economic trends that occurred 4-5 years ago (but for different economic reasons). In Japan, savings rates have declined sharply. They have fallen drastically from “11.4% of aggregate disposable income to just 2.2% in the decade ending December 2007”. Since 2007, disposable income in Japan has remained pretty stagnant, resulting in the decreased savings trend.

What is causing the downward savings trend in Japan? There are many factors, not the least of which can be attributed to income stagnation and an aging population, not unlike our “Baby Boomer” generation, a group that tends to do less saving and more spending, especially of their retirement funds. In addition, there are economic reasons that have accounted for the stagnant income, including an expensive housing market. The housing bubble phenomenon is something that isn't uncommon to many industrialized countries.

In comparing our two economic macro situations on a broad level, it’s easy to see some comparisons and trends that relate to each other. We see similarities in housing climates, spending trends by an aging population, and distribution of money, or lack thereof among generations.

It will be interesting to see how the trends will play out in both Japan and the United States. Here are a few questions that can add some food for thought:

  • What do you think of these new savings and spending trends?
  • Do you think credit card spending will continue to increase just as it has in the past? 
  • Do you think Japan will follow suit and see a massive consumer credit bubble?
  • Any predictions on the economic outlook for the U.S. and Japan?
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Guest's picture

While the average credit card balance in America is over $10,000, we just don't get it. I think John Cummuta says it best when he talks about how the creditors, advertisers, & merchants are al spending billions to figure out the best way to separate you from your money. It is up to YOU to say NO.

Dollars Not Debt

Guest's picture

I didn't realize saving has declined so sharply in Japan. They used to be a model of saving. I believe at one time, it had an average rate of saving around 15%.

As of now, it looks like they are on a similar course as the U.S. Even though it helps the economy in the short run, a very low savings rate has many long-term negative effects.

Guest's picture
TokyoHenjin

I was born and raised in the States, but I moved away after college and have been living and working in Japan since. I think some of the points you raise are valid (e.g., older populations tend to run down their savings), but there are enormous differences between how Japanese and Americans spend and save their money.

For example, Japanese tend to spend most of their 20s saving money for big life purchases, typically at rock-bottom interest rates with limited choices in terms of savings and investment. Japanese often spend their single working life living at home or in tiny apartments so they can save as much as possible for a wedding/car/house/family. Americans, on the other hand, have more financing options available that allow them to have these things sooner.

These financing options are helped by a culture where having a balance is normal. On the other hand, the tendency in Japan is to avoid loans as much as possible--the vast majority of cards are automatically set to pay off every month. This means that credit card debt is almost non-existent here.

These and other factors suggest that Japan will not turn into a spending culture like the United States, regardless of the recent trends in savings. This is causing its own set of problems, as domestic consumption is unable to make up for the reduction in exports due to the strong yen, but I think it could be far worse all around.

Guest's picture
Guest

Well Da!

Japan was where US is now in 1990! US baby boom now 49years is about to pop - exactly as Japan did 1991 when their BB was 49years old. Peak spenders turn to savers.

The difference is Japan had 20years of global growth to export stuff. The US will have next to none. They won't have any cash to save!

The big difference with Japan:
They will starve! Yes - no food = in two weeks your dead!

185 mil in population - only about 5 days food reserves.
World wide breakdown in food export and ramping up of food prices + a failing of the Japanese economy = millions starving over night.

Funny thing = They have thousands of rice silos around the country used in the depression - ALL EMPTY TODAY.

I say "Konickiwa you should store some food under your house" The say " He he We don't have an 'under our house!"

Guest's picture
Josephine

I'm not sure, to be honest. Japan is a beautiful and complicated country. I feel it's best summed up in this documentary.

http://www.youtube.com/watch?v=Jac2-XMGd1w

Guest's picture
Guest

Even though people don't save in banks anymore, people still save cash in their homes.