Location: Macroeconomics Unit II - Aggregate Demand and Aggregate Supply

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welkerjason
welkerjason
Why don't Americans save?
Feb 18 2008, 1:59 AM EST | Post edited: Feb 18 2008, 1:59 AM EST
According to theory, individuals earning higher incomes should have a higher marginal propensity to save. As we learned in class, however, as incomes have risen in the United States, savings rates have actually fallen closer to zero. Why don't Americans save like Asians do? And does savings matter, anyway? Do you find this valuable?    
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HelenChu
1. RE: Why don't Americans save?
Feb 23 2008, 3:32 AM EST | Post edited: Feb 23 2008, 3:32 AM EST
My dad's friend once said something that basically summed up the Asian saving dilemma: "If I don't save enough, I'm scared I'll have to live through my old age uncomfortably - not being able to eat whatever I want or go wherever I want. But if I save too much, I don't want money left over after I die, because that will mean that I have worked too hard during my lifetime and I ended up with something that I will never have a chance to get satisfaction out of." Now this person may be a bit more selfish than most Asians, but he does have a point. I guess the motivation behind Asians' "saving ethic" is that we are looking to a point in the future where we can relax and have nothing to worry about, at least financially. A little sacrifice now will pay off when we are happily retired. But then non-Asians want to enjoy the most out of their prime of life. I guess it all comes down to a difference in marginal-cost-marginal-benefit perspective. Do you find this valuable?    

judy_chen
2. RE: Why don't Americans save?
Feb 23 2008, 5:31 AM EST | Post edited: Feb 23 2008, 5:31 AM EST
I remember that one day I was talking with my parents about how their family spend their holidays. I told them that they travelled to 2 places during christmas holiday while we are not planning to go anywhere during summer. My father told me that that's what Americans normally do. They don't save but spend it for travelling. This is good somehow that they get to travel in different places all the time. However, it is also not good when people suddenly lost their job and emergency occurs that they happen to be having no money. Saving somehow makes people feel safe since we can use those money to buy houses, live comfortably, and being prepared to encouter any emergencies. Do you find this valuable?    
yunqimok
yunqimok
3. RE: Why don't Americans save?
Feb 23 2008, 10:21 PM EST | Post edited: Feb 23 2008, 10:21 PM EST
Perhaps the Bush Administration was able to convince its people to spend, spend, SPEND rather than save, and not contribute to the nation's falling GDP.
Asians always seem to have the tendency to save more than people in the US. Perhaps this is a difference in culture. Asians always prefer relying on themselves, and hate having to owe debts to other people. Thus, they will always try to save as much as they can, in case of a rainy day. People in the US, on the other hand, are used to being rich, and they find it perfectly fine to just keep borrowing and mounting on their debts. They are more confident to spend their money. The same applies to governments. China's government owes not a single cent to any other nation, but US debts are crazily high.
Savings are there to make people feel safe and secure, no matter how bad this might be for the economy.
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123kc
4. RE: Why don't Americans save?
Feb 25 2008, 1:34 AM EST | Post edited: Feb 25 2008, 1:34 AM EST
Americans pay a lot of tax compared to Asians. There are more social benefits provided by the US government, so in a way money has already been put aside for things that Asians have to pay for individually. Do you find this valuable?    
KatherineYang
KatherineYang
5. RE: Why don't Americans save?
Feb 26 2008, 3:14 AM EST | Post edited: Feb 26 2008, 3:14 AM EST
My mom summed it up to me once, and this may be a bit biased, she said that Americans like to enjoy life now, whereas Asians work to enjoy life in the future. Asians strive to be self-sufficient so that they won't need to rely on their children to support them, though they do expect it. Americans expect their children and their country to take care of them upon retirement. That's what my mom said anyway, but I think I do agree to some degree. I think Asians are just a bit more uptight than Americans so they worry too much about the future, Americans on the other hand are easy-going about the now, so they enjoy the now. Which is better? Both have their good and bad points, so I really don't know. Saving is good, as long as one doesn't go parsimonious, especially on a rainy day. Do you find this valuable?    
anqxl
anqxl
6. RE: Why don't Americans save?
Feb 26 2008, 10:57 PM EST | Post edited: Feb 26 2008, 10:57 PM EST
It's probably more or so related to cultural background. But i also think that in the states, people tend to save less because they invest their additional disposable income. Since inflation is inevitable in a growing economy, savings in a bank account is likely to lose its value. But investing in real estate or stocks allow income to born money. And anyways, saving doesn't contribute to a country's GDP. When consumer spending increases, it sets off the multiplier effect, and is healthy for the economy. Whether or not individual will have enough money for their retirement is their own choosing. Do you find this valuable?    

jeewono
7. RE: Why don't Americans save?
Feb 27 2008, 1:01 AM EST | Post edited: Feb 27 2008, 1:01 AM EST
We all know that Asians and Americans are inherently different, and I guess the different propensities to save reflects their different cultures and values. Asians tend to think more about the future. In Korea, most people save their income in order to buy a house to live in when they get old- that's their ultimate goal. Americans like to spend what they have now. As Katherine said, they believe that the government will take good care of them after retirement. Asians are afraid that if they don't save money now, they won't be able to afford the costs of living in the future, when they will no longer have a job. Saving isn't included in a country's GDP, but more saving means less spending, so too much saving won't be good for the economy. Do you find this valuable?    
JessicaNg
JessicaNg
8. RE: Why don't Americans save?
Feb 27 2008, 4:48 AM EST | Post edited: Feb 27 2008, 4:48 AM EST
Like most people have already mentioned, this has a bit to do with cultural values and ethics, as Asians tend to have a higher marginal propensity to save than Americans. There is no wrong or right answer in that. It's simply a matter of perspective.
But I think the most important cause of this is because since Americans pay a lot more taxes than Asian countries in general, Americans are provided with a lot more benefits after retirement, like Social Securities and such. Asians don't have that as much. Thus, in a way, Asians NEED to save more than Americans do, because they do not receive benefits as they reach old age and are no longer able to get a job to provide for themselves.
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Charlie.Gao
9. RE: Why don't Americans save?
Feb 27 2008, 3:25 PM EST | Post edited: Feb 27 2008, 3:25 PM EST
Wait. Isn't saving a bad thing for GDP? Because it doesn't count towards GDP. I thought it was better for Americans to spend so that aggregate demand rises. Do you find this valuable?    

JackLo
10. RE: Why don't Americans save?
Feb 27 2008, 9:50 PM EST | Post edited: Feb 27 2008, 9:50 PM EST
I guess it's more of a cultural thing. The American culture emphasizes more on enjoying life as it is. Asians, on the other hand, are more conservative they save their money so that they can enjoy life later when their old. Also, the US government offers more benefits for the elderly and those who are in financial trouble, while Asians most likely have to pay for themselves when they're old and on a fixed income.
One thing my dad warned me to not do is to keep debts. He said it's like giving someone a leash over you and might become a thorn in your side if you don't pay if off fast.
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jeffye
11. RE: Why don't Americans save?
Feb 27 2008, 11:49 PM EST | Post edited: Feb 27 2008, 11:49 PM EST
I think it's more of a cultural habit than anything. Most asians are brought up conservative and always worried about money. This is because many asians either grow up, or have had parents who grew up without much money. This will lead to a tendency to start saving so that this situation will not happen again. Also, as America's GDP is increasing at a rapidly decreasing rate, Americans might be encouraged to spend more to help stimulate America's economy . Having money saved would allow a better and more comfortable life after a steady flow of income is no longer an option; however, saving it all and enjoying none at the moment is also the wrong thing to do. It's all about balance. Do you find this valuable?    

Chanmin
12. RE: Why don't Americans save?
Feb 28 2008, 1:04 AM EST | Post edited: Feb 28 2008, 1:04 AM EST
As many have mentioned it is probably mostly a cultural thing or maybe external influences. Culturally, the United States are more a individualist culture and they wish to enjoy life whereas Asians are more of a collectivist culture and therefore save more. Also in Asia as of now, the government does not provide as much support for the old and therefore it is solely up to the individual to save money. Also prices are generally more expensive in the United States and I think investment is probably much greater in the United States than in Asia so a majority of their money is not saved but invested. Also as mentioned before, the government continuously tries to make consumers spend more, since that will shift the aggregate demand out and lead to economic growth. Do you find this valuable?    

kevinchiu
13. RE: Why don't Americans save?
Feb 28 2008, 1:19 AM EST | Post edited: Feb 28 2008, 1:19 AM EST
Perhaps its the fact that, in the U.S. goods, and services are way more widely advertised and appealing than those goods in China; personally, I find that I'll spend a much smaller amount of money in China, in several months, than I will when I go back to the states for merely a month. I mean.. walking through Metro's electronic shops is way different than walking through Circuit City... Al Do you find this valuable?    

kevinyeh
14. RE: Why don't Americans save?
Feb 28 2008, 1:21 AM EST | Post edited: Feb 28 2008, 1:21 AM EST
One thing i noticed is that Americans are more for comfort and luxury than Asians are generally speaking. Like someone said earlier, it's more a matter of save now and spend more later vs. spend more now and enjoy it, but have less later. Plus, in Chinese tradition, it's not good to be overly lavish in lifestyle, where most Americans could care less about principles to live more simplistic lives and rather spend it all over the board.
Another interesting thing i noticed is that Chinese people here in China have a tendency to be more frugal on most their consumption, yet in certain aspects they want the very best. For examples, some people who ride beat up bikes which look decades old have the most high tech and newest cell phones. Maybe Asians save more so that they can focus on having a single thing which they take their pride in, instead of spending all they have
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jacqueszhang
15. RE: Why don't Americans save?
Feb 28 2008, 1:27 AM EST | Post edited: Feb 28 2008, 1:27 AM EST
I think for the most part, the rationale behind Americans spending more is there generally consistent optimism. It seems like America for the past few decades has been on a rise, where the population generally thinks: "Oh the economy is doing great, and there's no way anything can go wrong!" Investment in houses, buying goods and the such.. that's all been surging. Asians on the other hand, have mostly experienced some sort of economic hardship in their cultures, thus, they have a tendency to save up just for the sake of safety. If the economy were to suddenly collapse, they'd be better off thanks to their savings. Do you find this valuable?    

nicolewong
16. RE: Why don't Americans save?
Feb 28 2008, 2:46 AM EST | Post edited: Feb 28 2008, 2:46 AM EST
It's interesting that Americans don't seem to be saving, when the recession in the U.S. right now indicates that there isn't enough expenditure going on. I agree that the cultural aspect plays a huge role in this, but there could also be the issue of debt. Liek Mr Welker said in class, a downfall of the tax rebate is that people are paying off debt instead of spending. Perhaps there is so much debt in the U.S. that not enough is being spent or saved? Do you find this valuable?    

richardtu
17. RE: Why don't Americans save?
Feb 28 2008, 2:54 AM EST | Post edited: Feb 28 2008, 2:54 AM EST
As an Asian, my parents taught me how to use money efficiently; if you earned $10,000 , you dont have to spend the whole $10,000, they always told me that saving is a form of smart and good behavior. However, I believe that saving has a strong correlation with interest rate. As taught in the class, the higher the interest rate, the willingness to save is higher, while when interest rate is declining, the willingess to save is lower, adn thus you tend to spend more. Saving does matter, however, it must be concerned with the situation in hand. You wouldnt want to save when you expect the interest to fall greatly in the future, and vice versa. Do you find this valuable?    

alicesu
18. RE: Why don't Americans save?
Feb 28 2008, 3:21 AM EST | Post edited: Feb 28 2008, 3:21 AM EST
Frugality, much like loyalty to friends and filial piety, has long been an inherently valued part of Asian culture and tradition. While Chinese people who save money and humbly refer to themselves as poor and deprived are approved of, Westerners who are able to display their wealth in the form of material possessions are more likely to gain respect and honor within their own spheres. This is one of the reasons why "Americans don't save like Asians do"; however, I think another reason why MPS decreases with the rise of income could be due to the false sense of security that a high income brings. If I am not making much more than what I need to survive on, I'll be more likely to be paranoid and try to save as much as I can. If I am making far above what I NEED, however, then all the excess income I make could make me feel secure enough to recklessly spend it and forgo my old habits of saving. Do you find this valuable?    

MichaelChow
19. RE: Why don't Americans save?
Feb 28 2008, 3:28 AM EST | Post edited: Feb 28 2008, 3:28 AM EST
One reason I believe is behind Americans spending rather than saving in comparison to Asians is their constant fall in currency, which causes money to be worthless that it merely was a few months ago. Saving in general is supported by how as incomes get higher there is a higher rate in saving, because I feel that there is a limit to what you need to buy, having several houses would not have as much impact as you may presume so this in turn is saved. This whole saving difference between Americans and Asians can further be exemplified through the use of America's current stage of it about to go into a recession. This long term recovery will only create inflation on prices causing Americans to spend rather than save fast. Do you find this valuable?    
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