#49 Why Don’t Americans Save String?

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The United States is not a nation of “savers”.  This article focuses on the difference between the approach to personal savings in the Unites States vs. China, a country which very few of us understand.  Turns out we can learn something from having a look and doing some comparisons. 

string saver

I read an interesting article this morning in the Financial Times about the savings habits of the Chinese.  The author tells the story of his Chinese wife who saves small pieces of string from  a small take-out coffee shop, and uses the story as a demonstration of why Beijing’s efforts to encourage more consumerism is going to face a long, uphill battle.

I learned a few things, became curious, did some research, and am now writing this post with the results.  Curiosity, generated from one simple article.  (Lesson of the day:  read often, from wide sources, ask questions, stimulate your curiosity, self-educate, and never stop learning!).

What I learned

As an international businessman, I recognize that we Americans are woefully ignorant of other cultures, sometimes embarrasingly so (gasp, say those who are blindly pro-American.  Before you judge, understand.  I can say objectively, after having spent time in over 2 dozen countries, that in spite of our shortcomings there is no better country, in my opinion, than the United States of America.  I love this country. That doesn’t stop me from recognizing we’re woefully self-focused from a cultural perspective, and could all benefit from the study of other cultures).

But…I digress.

So…here are some interesting facts I learned this morning about our friends in China:

  • No one gets pensions, and no one gets social security.
  • Why do so many families desire a son instead of a daughter in this “one child policy” country?  One of the primary reasons, it’s turns out, is that if you have a son you have a place to live in retirement, as almost every family moves in with their son after he gets a job. If you have a daughter, you’re out of luck, with no family to care for your in your old age (the daughter dedicates her efforts to the parents of her husband, who now live with her).
  • The ratio of boys vs. girls in Chinese birth rates:  122 to 100.  The disturbing reality is that the value of having a son is significant enough to encourage many to have an abortion when an ultrasound reveals their unborn child is a female.  This sickens me.

The most startling learning, and the point of this article, is this:

The Average Chinese Savings Rate is 30%

My curiosity triggered by the Financial Times article, I started researching the personal savings rate in China vs. the USA.  I came across this interesting article in Forbes, which is worth a read. The article, written by a Chinese author who lives in the USA, cites the 122 to 100 birth rate and notes the resulting difficulty in finding a suitable mate for your son among the smaller percentage of eligible woman.  (Are you learning anything yet?  Interesting stuff).  With more wealth, their son is a more attractive mate for the smaller pool of female candidates.

Bottom Line:  if you have a son in China, you need to save a lot to make your son attractive to win a wife from the smaller population of woman.  If you have a daughter, you need to save a lot because you have no safety net in retirement.  No social security, no pension, and no family to care for you.

Therefore, the Chinese save string.

Disturbing to me in many, many regards, but interesting nonetheless.

While I have strong objection to the root cause motivation behind the Chinese savings rate, I find it fascinating.  There is a clear recognition, among the entire population, that they must save, and save aggressively.  In spite of much lower per capital income of only $2,993 in China, they save 30% of that meager income.  I can only imagine (with a sense of sadness) the daily sacrifices the poor people of China must be making on a daily basis.

The Average USA Savings Rate is 5%

Contrast the situation in China to that in the United States.  I suspect few would argue against the opinion that we’re one of the most desirable countries of the world in which to live.  I am extremely thankful to have had the luck of being born in this country.  (Think on that for a moment – any one of us could have just as easily been born in the poorest country of the world, and we should count our blessings daily).   I’m concerned, however, that our cultural obsession with materialism, and an increasingly nanny state, are negatively impacting us in a way we won’t truly understand for decades.  At that point, I fear it will be too late for many.

In the USA, with a per capital income of $24,062, our savings rate is a paltry 5%:

USA Savings Rate

It doesn’t have to be this way.  My personal savings rate is close to the Chinese, and has been for years.  Yours can be, too.  Its a personal choice, and you CAN do it.  How you manage your money now, and how you make your lifestyle choices today, has severe implications for your retirement outlook.  Don’t wait.  Get serious, and make changes.

Our government debt is realistically unpayable, yet we naively continue to spend our money on “wants”, resting assured that we’ll be fine in retirement by cashing our Social Security checks and having Medicare cover our Doctor bills.

Think for a minute.

The United States Debt Level, as I write this,  is $18,154,436,227,617.12   ($18 TRILLION!!)

Even worse, the TOTAL US debt, including unfunded liabilities (such as municipal pension obligations for fireman, etc.), is $127 TRILLION, OR or:

 $1.1 MILLION PER TAXPAYER!

Do you think maybe (MAYBE)  there could possibly (POSSIBLY) be a solvency problem at some point in our great country’s future??

If there were no Social Secuity, and there were no Medicare – what would you do?

Be thankful that you live in a great country, and don’t have to bear with the difficult situations in China.  However, realize that even in a country where folks have so little, they’re able to save 30% given a strong motivation.  Recognize the reality of our country’s current fiscal situation, and use it as motivation to increase your personal savings rate.  Be responsible.

Or, stated another way:

Start saving string.

 

Author:  Fritz Gilbert – Founder @ TheRetirementManifesto.com

 

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2 comments

  1. Very interesting article, thought provoking… One point I would like to add is that today the US debt is about equal to our GDP (18 trillion), slightly over 100% as a ratio of Debt to GDP (according to IMF). Most people don’t think it’s a big deal given that it’s been this way for so long. But this is a very big issue! We have been in this situation before, at the end of WWII our Debt/GDP ratio was over 120%. The difference is that the generation that suffered through the depression and then fought in the war had the will to modify the situation and were ready to make the sacrifices (cut in programs and rise in taxes) in order to provide a better life for future generations… The debt ratio hit its low point in 1980 (~35%) and has been increasing ever since. Will we do something about it in order to provide a better future for the next generations?

    1. Dan, thanks for your input. I agree Debt to GDP is an interesting way to view debt, especially when comparing debt between countries and time frames. My biggest concern is the size of the “unfunded liabilities”, which are more than 10X the “official” debt. Your question is the right one: do we have the courage and backbone as a country to realistically take the steps required to reduce the debt to a manageable level? In order to do that, social programs WILL get hit, including Social Security and Medicare. Best to be ready, and be frugal with your personal income, just in case.

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