AsianScientist (Aug. 15, 2011) – With the global economy in a state of turbulence, saving money seems to be an obvious strategy for households to shield themselves. But are global households saving enough? Two studies find that households in the US and China differ greatly on saving and spending habits.
In the first study, Rui Yao, an assistant professor at the University of Missouri, found that urban Chinese households, on average, save much more than American households.
For her study, published in the Family and Consumer Sciences Research Journal, Yao looked at three common savings motives: precautionary, education, and retirement.
By studying and comparing results from the American 2007 Survey of Consumer Finances and the 2008 Survey of Chinese Consumer Finance and Investor Education, Yao found that nearly 60 percent of Chinese households save for precautionary reasons, while only 35 percent of American households had similar saving motives.
She also found that 59 percent of Chinese urban households save for education, such as college tuition, while only 19 percent of Americans reported an education saving motives.
Finally, Yao found that there was no strong significance in the difference in retirement savings; however low income Chinese households reported saving more for retirement than low income American households.
Yao believes the variations in saving motives are related to cultural and economic differences between the two countries.
“In the US, unemployment insurance and other welfare programs provide a relatively sound safety net, whereas in China, there are no such social-welfare programs. As a result, Chinese households must resort to family support or previous savings in the case of an emergency,” said Yao.
“Also, the Chinese culture, which is influenced by Confucianism, values education very highly. Recent Chinese economic reforms have shifted education costs to households, which gives them additional motive for education saving,” she said.
Chinese students have credit cards, but choose not to use it
In a second study carried out by Monash University’s Steve Worthington and David Stewart, and Frauke Mattison Thompson, Assistant Professor of Marketing at Nottingham University Business School China, the researchers canvassed the views of more than 150 students on the Nottingham Ningbo campus and found that China’s young consumer are savvy about the costs of borrowing and wary about debt.
There are at least 230 million credit cards believed to be in circulation in China – but with revenues estimated at only about US$1/per card in China. China’s consumption to gross domestic product (GDP) ratio, which at about 36 percent is only half that of the US.
The study, published in the latest Journal of Retailing and Consumer Services, reported that China’s young affluent consumers may have more than one credit card, but are not building up much debt on them.
Two reasons for low debt are a fear of losing control over personal finances, and also the limited availability of card-accepting terminals in stores.
Dr. Mattison Thompson noted that China “is very savings centric, rather than borrowing centric, and very cash centric, rather than card centric, when it comes to payment at point-of-sale.”
“This is why debit cards, which essentially access cash in a bank account rather than debt, are very popular: there are believed to be more than 2.1 billion debit cards, yet the population is 1.3 billion,” she said.
“Students seem to be aware that paying by credit card can encourage spending beyond their budget. There is a great reluctance to go into debt and to then pay interest on that debt, which of course is one of the defining features of the credit card product,” said Prof. Worthington.
Significantly, the qualitative research produced interesting thoughts from Chinese students about “feeling guilty using future money.”
This suggests, said Prof. Worthington, that they still retain many of the conservative cultural attitudes of their parents and grandparents, who still remember periods of severe hardship and are therefore keen to keep a wide financial buffer between themselves and the proverbial wolf at the door.
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Source: University of Missouri; University of Nottingham Ningbo, China.
Disclaimer: This article does not necessarily reflect the views of AsianScientist or its staff.
