spend less than you make

What Do the Chinese Spend Money On?

Xin Lu — Tue, 12 Jun 2012 09:36:38 +0000

Four years ago I wrote about some money habits of Chinese people. Most notably I said that Chinese people have a very high savings rate. Some readers have asked me what Chinese people are saving for. Recently I just made another trip to China, and I would like to share some of my observations on the subject of how Chinese people spend their money currently.

First of all, I should clarify that I am writing from the point of view of a upper-middle-class urban Chinese family that makes around $1,000 to $2,000 a month. There are many extremely wealthy Chinese people, and there are countless Chinese people who are much poorer. Their spending habits may be vastly different. (See also: How Your Last Name Affects Your Spending Habits)

Housing

Housing prices have zoomed out of control in the last decade, and the government has made efforts to cool the market. Prices have come down since 2009, but most young people still are not able to afford a house without help. In my hometown of Yangzhou, apartments are selling for about 400 to 600 yuan per square foot. This means it would take an upper middle class family eight to ten years of savings to buy an 1,000 square foot apartment in cash in Yangzhou. In larger cities like Shanghai, apartments generally cost over 1,000 yuan per square foot, so it is much harder to pay cash.

Those who take a mortgage in China are called "fangnu," which means house slave. Another slang for mortgagees is "woniu," which means snail, because they are weighed down by their shelter. These people generally are extremely frugal with everything in their lives, but they spend a large percentage of their income on their mortgages. Additionally, mortgages are all adjustable in China, and the government can raise or lower the rates at will. So when people can pay cash they will do it because they just don't like the uncertainty. Upper-middle-class families generally try to provide housing for their sons once they get married, and including a new condo as a wedding gift pushes the cost of some weddings into the hundreds of thousands of dollars.

Education

Chinese public schools are not free through the 12th grade. Parents usually have to start paying for high school, or if they want to go out of their predefined district they can do so by paying. When it comes to college, many upper-middle-class parents prefer to send their children abroad because they believe foreign colleges provide a more solid education. Additionally, there are many college students without jobs now in China, so a foreign degree gives a person an extra edge in the job search. Some parents actually sell their houses to fund these international students, but others simply pony up decades of savings. There are student loans in China, but they are very rare, so most people pay for college with cash.

Cars

Cars are very expensive in China if you consider the initial cost and the cost of upkeep. First of all, all imported cars cost two to three times the list price in America due to taxes and other markups. So a car that is about $30,000 new in America can cost $60,000 to $90,000. That makes a car almost as expensive as an apartment. There are cheaper, China-manufactured alternatives to import cars, but Chinese people prefer to buy import Audis and BMWs because they say that the quality of the cars made in China isn't as good. Since they're spending such a big chunk of money, they would rather buy something nice. In addition to the initial cost of the car, there are steep costs for car registration in some cities to help curb congestion. In Shanghai it costs on average $10,000 to just register a new car, and registration is done by a monthly lottery. After you get the car and start driving, you will find that practically all the highways have a toll of around 10 cents per kilometer (16 cents per mile). Even with these costs, more and more cars are getting on the road.

The common thread that I saw in China is that Chinese people are still very frugal in their daily lives, but many people are saving up for that one big thing. Another notable thing is that Chinese parents pour everything they have into their children even after their children are adults. Ultimately, Chinese and Americans all want to live better lives, but the difference is that most Chinese people don't reach that higher standard of living on borrowed money. Sometimes I don't know if the Chinese method is smart or naive, because it seems that so many Americans get what they want without saving for years, and it is not that hard to get rid of debt through legal maneuvers.

What do you think? Is it silly to save for purchases in your life when you can just finance everything?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What Easter Island Can Teach Us About Money

Tara Struyk — Wed, 11 Jan 2012 11:24:25 +0000

“A fool and his money are soon parted.” That was a favorite quote of my late grandfather, who, by all accounts, was not a terribly genial man (although he loved timeless, biting quotes). We probably all know at least a few people who struggle to manage their money. In fact, most of us fall into this trap ourselves at some point in our lives, left scratching our heads and wondering just what the heck happened to that paycheck. But I’m not convinced this tendency toward overspending can be written off as easily as my grandfather’s quip implies. After all, the majority of U.S. households carry some debt; on average, it’s about 115% of disposable income. Even the government is in over its head. So what exactly is going on here? Are we all just foolish with our money? (See also: The Many Reasons to Make Do With Less)

The Spectre of Prosperity

I recently read the book Collapse: How Societies Choose to Fail or Succeed by Jared Diamond. It tells the story of the Polynesian people who colonized Easter Island, one of the most remote bits of habitable land on the planet. And while you might think that these people are about as far from the complications of modern finance as you can imagine, I found myself thinking about how people often behave when it comes to their financial lives — and how they manage to raze a perfectly fruitful financial life, time and time again.

According to Diamond, when Polynesians first landed on Easter Island in about 700 A.D., it was a lush paradise; by the time European settlers arrived in 1722, it was a wasteland. The islanders had cut down each and every tree on the island to fuel their fires, build their cities, and erect the giant stone statues that still stand there today. It’s a story that’s often used to point out humans’ tendency to build their lives on the present, without any thought about the future. It all boils down to the human tendency to procrastinate, to defer, to say “I’ll deal with it later.” Whether we’re talking about politicians, subprime homebuyers, or credit card junkies, the result is the same — a spectre of prosperity that’s haunted by its long-term consequences.

To me, the Easter Island people are a lot like those who cling to huge homes they can barely afford to pay for, or those who spend like there’s no tomorrow and are unable to retire. Why do we do this? It seems that for both the people of Easter Island and many people today, there’s at least one thing that’s a lot stronger than self-preservation — pride.

Building an Illusion

When I think about Easter Island and how each every tree was felled one by one, I wonder who was charged with cutting down that very last tree. It's easy to wonder what they were thinking. After all, they must have known they were cutting down the future of their society in pursuit of a life that just wasn’t sustainable. In the end, their society went from a thriving island of thousands to just hundreds of islanders with little food to sustain them and no wood to build homes or fishing boats. Their beautiful stone statues were the trappings of wealth, and these statues grew larger and larger over time. But just like going into debt to build a beautiful house and live a certain life, what many people — past and present — work so hard to build is an illusion, and one with disastrous consequences.

What Are You Building?

If you visit Easter Island now, you’ll still see its famous statues — hundreds of them, some standing more than 30 feet tall. The largest of all stand abandoned, unfinished. Presumably, the resources to quarry the stone and transport it across the island had run out, as had much of the food required to sustain the workers.

The consequences of building a life on money that is not your own are much less dramatic than the situation on Easter Island. But think of those statues looking out over the barren landscape of Easter Island and the vast ocean that surrounds it. At one time, they were emblems of prosperity and power. Now they are a sad curiosity, and the society they represented long gone. What they say about that society, however, hasn’t changed. So ask yourself this — are you erecting a monument to the present or building a life for the future? The problem with the Easter Islanders is that they chose not to change course. Will you?

This article is from Tara Struyk of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Guarantees Besides Death and Taxes

Jason Topp — Wed, 06 Jul 2011 09:48:18 +0000

"In this world, nothing is certain but death and taxes." At least, that's according to Benjamin Franklin.

Perhaps back in his day this was true, but I don't necessarily agree with him anymore.

Yes, death and taxes are certainties, but I believe there are a few more guarantees in this world.

1. Spend Less Than You Make, and You'll Get Ahead Financially

It doesn't matter if you make $30,000 per year or $300,000, you MUST spend less than you make. (See also: The Many Reasons to Make Do With Less)

And when you do, you can guarantee you'll get ahead. Why? Because cash flow drives everything. If you spend less than you make and start saving regularly, you too can become a millionaire!

Take those who participated in research for Thomas J. Stanley's book Millionaire Next Door as an example. The millionaires questioned all had a few things in common, but one in particular was that they spent way less than they made — and they saved aggressively too!

2. Money Alone Does Not Buy Happiness

There's no denying that money does buy some level of happiness, but it's only to a certain degree. Generally speaking, experiences, not stuff lead to greater joy. Simply put, money alone will not buy it! After the initial luster of your new toy, car, or watch has worn off, there is a diminishing return on your happiness.

Don't get me wrong, I think everyone should try to make as much money as they can — legitimately, of course. But instead of trying to achieve the next cultural status level because we think we'll be happier, perhaps we should discover our purpose, make it a point to pursue our passions, and strive to build great relationships.

3. If You Want Maximum Joy, Give Your Money Away

To achieve that ultimate happy life that we all search for, one would think spending lavishly on ourselves would do the trick. But if you really want maximum happiness, you should become a more generous person and help others in need.

I know, it sounds absurd doesn't it? Our culture tells us the opposite all the time. Media and advertising scream for us to gain happiness by buying the latest and greatest toys, gadgets, and expensive clothes!

If you don't believe that it's better to give than to receive, I dare you to try a generosity experiment. I challenge you to be less consumed with yourself, look for opportunities to bless other people, and use your money to help others in need over the next 30 days. I'm willing to bet that your "joy-ometer" will be much, much higher than if you were to spend lavishly on yourself.

If I'm right, continue for the next 30 days, and so on.

4. Investing in Your Close Relationships Yields the Best Returns

As investors, we all want to achieve the greatest return on investment. But what investment yields maximum results? Family and friends.

First of all, you can make no greater investment in this world than into your soul mate. Spending quality time together, building memories that last, and connecting with each other on a regular basis will yield a fruitful marriage for years to come.

Secondly, if you are a parent, your children will be forever grateful that you invested quality and quantity time regularly with them. If you are single, think about investing into your close friendships by looking to others' needs above your own.

Your joy will increase, your ROI will be spectacular, and you'll be on your path to true wealth.

What are your thoughts on these guarantees?

This article is from Jason Topp of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: