Recently the issue of saving has become maybe too exciting. Despite a booming economy, household saving rates sank to near-zero levels by 2005. Three years later, the U.S. economy experienced a housing and financial meltdown from which we have yet to recover. Americans now contend with massive credit card debt, declining home prices, and shaky financial institutions. It has become painfully clear that millions lack the savings to protect themselves against foreclosures, unemployment, medical emergencies, and impoverished retirements.
As American families ponder their next move—whether to spend, save, or borrow—they might consider the very different ways in which other advanced capitalist nations behave. In Germany, where households sock away much more than Americans, saving is sexy. That’s how we may translate “Geiz ist geil!” the wildly successful advertising campaign run by the electronics chain Saturn between 2002 and 2007. For many Germans, the slogan playfully affirmed their frugal, often stodgy approach to consumption. In Japan, which until recently boasted the world’s highest household saving rates, saving was rarely sexy. But it has been stylish. The pert, modern housewife demonstrates her cleverness by controlling the family’s spending and boosting savings.
Japanese people not only work incredibly hard, they save huge portions of income. Japanese household saving rates reached 23 percent in the mid-1970s. Benefiting from the ready supply of low-cost capital, Japanese manufacturers ran circles around their American rivals. Japan would be followed by the rise of other high-saving economies in South Korea, Taiwan, Singapore, and Hong Kong. Then came the biggest one of all—China, which currently boasts a household saving rate of roughly 26 percent. By the first decade of the twenty-first century, those in charge of the U.S. economy spoke disapprovingly of a global “saving glut” exacerbated by Asians who oversaved and underconsumed.
For the last three decades, economists have endeavored to explain why Asians save so much and Americans so little. High growth in Asia has surely been one factor. Consumption tends to lag behind sharp gains in household income. Another incentive to save in Asia was said to be the lack of welfare states. Knowing they could expect few benefits from the government, families engaged in higher levels of “precautionary saving” to deal with emergencies and old age.
It has also been tempting to fall back on “culture” as an explanation. Aren’t Japanese, Chinese, and Koreans traditionally thrifty because of a shared Confucian-Buddhist heritage? Alan Greenspan blamed Asian savers for investing in America’s catastrophic housing bubble. Chinese saving rates soared because “consumption restrained by culture and inadequate consumer finance could not keep up with the surge of income.”
Such cultural explanations have serious limitations. We must explain not only why East Asians save so much, but how powerful norms contribute to the free-spending propensities of Americans. Why not invert Greenspan’s words? In the United States, consumption—stoked by a culture of instant gratification and fueled by excessive consumer finance—surpassed families’ incomes and decimated savings.
What brings together the high-saving societies of Europe and East Asia is not a common heritage, but rather a common modern history. Beginning around 1800, social reformers and governments became preoccupied with creating prudent, self-reliant citizens who saved their earnings. Nineteenth-century proponents called this “organizing thrift.” To encourage “humble” folk to save, they established philanthropic savings banks and later post office savings banks.
Small saving – in the form of deposits in banks, post offices, savings bonds, or life insurance schemes has been vital historically for reasons that go well beyond the economic. Politically, countries like Japan and France regarded the small savings of their people as crucial to maintaining autonomy from foreign creditors and to investing in national power. Their strategic approach gained wide acceptance by the time of World War I. British war savings campaigns, for example, targeted the “small investor”—liberally defined as every man, woman, and child. The equation of small saving and national independence resonates less today, unless we consider contemporary American anxieties about China. Low household saving, fear some observers, has made the United States financially dependent on China that is hardly a strategic ally.
Above all, the encouragement of small saving was, and is a social policy. Nineteenth-century champions of thrift believed that a working person with savings would be less likely to depend on public assistance, turn to crime, or engage in revolution. This overriding objective of social well-being explains why savings banks and postal savings systems were typically created as nonmarket institutions. Although small saving as a sociopolitical goal has largely disappeared in the United States, it may be making a comeback following the Great Recession of 2007–2009. Can a society—or an economy—be strong if the majority of households lack adequate savings for emergencies, retirement, and renewed consumption?
Defining small saving is only half the problem. How do we measure whether and how much ordinary people save? This is a challenge, historically and comparatively.
As specialists on international savings comparisons readily acknowledge, economic theory has not persuasively explained cross-national variations in saving. Here are just a few of what economists call “puzzles”:
• Germans and other continental Europeans save at high rates despite generous national pensions and comprehensive welfare programs.
• Americans live in a less secure, free-market economy. The general populace receives few social protections against unemployment or home foreclosure while paying much more out of pocket for health care and higher education. “Rationally” they should be saving up; instead they spent down until recently.
• Germans, French, and other Europeans generally maintained high saving rates over the last twenty years despite rapidly aging societies.
• German and Italian adults have positive saving rates at all ages, including the retirement years, whereas elderly Americans dissave.
• U.S. saving rates declined during the 1990s amid impressive growth in incomes, while several European nations maintained high saving rates despite slow growth.
These puzzles lead thoughtful specialists to fine-tune their models, considering such factors as variations in national pension schemes. But do the economists protest too much? Could it be they’ve missed qualitative, normative elements that significantly shape saving and spending in each society?
Any analysis of why people have saved over the past two centuries must consider a multitude of motivations that go well beyond what economists can measure. The American media imagines that households save almost entirely for retirement. In actuality, the concept of retirement—the long period between working and death—is only about a century old in the United States, and just a few decades old in East Asia. Even today in advanced economies, households commonly save for shorter-term goals like unanticipated emergencies and purchasing consumer durables and homes.
Then there are the less tangible, yet powerful, motivations that have guided saving in modern times. Many save in part to achieve “independence” from creditors, employers, or relatives—much as Benjamin Franklin advised two and half centuries ago. Economists tend to study saving as an individual or household act, but we also encounter numerous cases around the world in which people save to impress others. The Victorian
gentleman was expected to be thrifty. Nationalism, too, has motivated saving, and not just in wartime. Untold numbers of Germans, Japanese, and Singaporeans will tell you they save because it’s in their national character. And of course savers have long regarded themselves as virtuous. In religious terms, the “Protestant Ethic” comes to mind, although other religions encouraged frugality as well.
To a certain extent these attitudes vary by individual. Some seem born to shop, others to save. Yet I suggest that individual motivations have themselves been shaped by larger cultural norms and social relations. Subfields of economics have tackled socio-cultural aspects of saving with varying degrees of success. Invaluable has been the work of development economists. They survey how poor people actually save and borrow in developing countries in Africa, Asia, and Latin America. Where formal financial institutions are absent or weak, villagers and neighbors often organize savings clubs, or savings and credit associations. The development economics literature also demon-strates the importance of popular access to safe, convenient financial institutions. People save more when they can trust that their money is secure in a nearby bank or post office.
If we are to think creatively about the financial plight of American households and the possible remedies, why stop at the border? Why confine ourselves to the present? When societies with such fundamentally different assumptions cohabit the capitalist world, surely we require a more historical understanding of how these rival cultures of saving and debt came to be.
The article is an excerpt from the Introduction of the book Beyond Our Means: Why America Spends While the World Saves, by Sheldon Garon, Princeton University Press 2011.
About the author
Sheldon Garon is the Nissan Professor of History and East Asian Studies at Princeton University and a former Wilson Center fellow. A specialist in Japanese history, he also writes “transnational history,” examining the flow of ideas and institutions among the United States, Japan, and other Asian nations. His publications include The State and Labor in Modern Japan (1987), Molding Japanese Minds: The State in Everyday Life (1997), and most recently Beyond Our Means: Why America Spends While the World Saves (Princeton University Press 2011).