Comparing Savings Rates: U.S. vs Japan

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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?