1

Personally, I can save up to 80% of my income. I believe normal person could save about 50% of their income, but none of countries average even 20%. Why?

according to : http://247wallst.com/investing/2011/08/15/the-ten-countries-where-people-save-the-most-money/3/

  • 7
    Firstly not everybody is the same. Secondly a country doesn't have homogeneous income for all of its citizens. Thirdly putting money into work, investing in projects to generate future returns, sometimes makes more sense then saving. So all in all your assumption is illogical. – DumbCoder Aug 15 '14 at 12:57
  • 1
    There are probably defensible, reasoned answers to this kind of question, but as phrased it's hard to know what kind of answer would satisfy you. What makes you believe that most people could save 50% of their income? Without knowing why you think that, it's hard to explain why it isn't the case in any specific way (beyond a generic unhelpful answer like "They don't make enough money"). – BrenBarn Aug 15 '14 at 18:27
  • 1
    Moderator note - I see mod flags requesting we close this question. Members should vote to close, if they wish. In my opinion, this is not flagworthy. The question is borderline, but a good answer or two can make it worth keeping. – JTP - Apologise to Monica Aug 15 '14 at 23:53
  • "I believe normal person could save about 50% of their income" - what is this based off of? Gut feeling? I can promise you between my wife and kids, just bare minimum expenses of mortgage, utilities, transportation, clothing, food, schooling, etc, we would not save 50% of my check. It's just what happens when you have kids early in your career. So, do you have figures that support this 50%-ability claim? – corsiKa Oct 27 '14 at 18:26
  • That doesn't include all countries, in China the rate is supposedly above 50% on average. There was a BBC documentary about it recently (China in general, this number was included) – William Dunne Feb 5 '16 at 9:26
8

If one takes a slightly more expansive view of the word "saving" to include most forms of durable asset accumulation, I think the reason some do and most don't is a matter of a few factors, I will include the three that seem obvious to me:

Education

Most schools in the US where I live do not offer personal finance courses, and even when they do, there is no opportunity for a student to practice good financial habits in that classroom setting. I think a simple assignment that required students to track every penny that they spend over the period of a few months would help them open their eyes to how much money is spent on trivial things that they don't need. Perhaps this would be more effective in a university setting where the students are usually away from home and therefore more responsible for the spending that occurs on their own behalf.

Beyond simple education about personal finances, most people have no clue how the various financial markets work. If they understood, they would not allow inflation to eat away at their savings, but that's a separate topic from why people do not save.

Culture

Since much of the education above isn't happening, children get their primary financial education from their parents. This means that those who are wealthy teach their children how to be wealthy, and those who are poor pass on their habits to children who often also end up poor. Erroneous ideas about consumption vs. investment and its economic effects also causes some bad policy encouraging people to live beyond their means and use credit unwisely, but if you live in a country where the average person expects to eat out regularly and trade in their automobiles as soon as they experienced their highest rate of depreciation, it can be hard to recognize bad financial behavior for what it is. Collective savings rates reflect a lot of individuals who are emulating each other's bad behavior.

Discipline

Even when someone is educated about finances, they may not establish good habits of budgeting regularly, tracking spending, and setting financial goals. For me, it helps to be married to someone who has similar financial goals, because we budget monthly and any major purchases (over $100 or so) must be agreed upon at the beginning of the month (with obvious exceptions for emergencies). This eliminates any impulsive spending, which is probably 90% of the battle for me. Some people do not need to account to someone else in order to spend wisely, but everyone should find a system that works for them and helps them to maintain some financial discipline.

6

A person who always saves and appropriately invests 20% of their income can expect to have a secure retirement. If you start early enough, you don't need anything close to 20%. Now, there are many good reasons to save for things other than just retirement, of course.

You say that you can save 80% of your income, and you expect most people could save at least 50% without problems. That's just unrealistic for most people. Taxes, rent (or mortgage payments), utilities, food, and other such mandatory expenses take far more than 50% of your income. Most people simply don't have the ability to save (or invest) 50% of their income. Or even 25% of their income.

  • 2
    I often hear this point raised, and I understand that some people have dire situations (single earner with 3 dependants, chronic severe illness, permanent work-prohibitive disability, etc.) that consume all their income. However, for 5 years of my life I earned < $15K/year, and I still saved/invested over $10K/year. Then when I was unemployed for 14 months, I lived entirely on those savings with no public assistance. I'm not special; I simply made the choice to live in poverty in the present so as to help myself in the future. – dg99 Aug 15 '14 at 19:15
  • 1
    @dg99, I don't know where you live. Here in Edmonton, Alberta, Canada, you can get a low-end apartment for roughly $1000/month, but it will be in a dangerous part of town. Add in utilities and mandatory insurance and you are at $15,000 per year just on housing. You still have taxes to pay and food to buy, and that's assuming you don't need transportation. Obviously, your cost of living is going to depend very greatly on where you live. – ChrisInEdmonton Aug 15 '14 at 19:34
  • 2
    @dg99, you say you made <15k and saved >10k. This leaves you less than 5k for the year. 375 a month takes you to 4500 a year for rent. This leaves you with less than 10 dollar a week to eat assuming absolutely no other bills. – Matt R Aug 15 '14 at 20:59
  • 2
    @dg99: Heh. But the point is that there is a big difference between "I was able to live on $5k a year as a single person by eating rice and beans every single day and spending zero money besides that" and "Why can't everyone save two thirds of their income?" Your lifestyle waz possible, but it clearly required an extreme deviation from expected standards of living; it shouldn't be surprising that very few people do that. – BrenBarn Aug 15 '14 at 21:08
  • 2
    @dg99: I think one way to look at that is "what does the average American person spend their money on?" That's an interesting question in itself. I think the best way to understand why people aren't saving would be to look at what they are doing with the money instead. You can then make judgements (based on whatever your value system is) about which of those expenses could or should be cut. – BrenBarn Aug 15 '14 at 21:22
1

This question is likely to be voted closed as opinion-based. That said -

In general people have become accustomed to instant gratification. They also have the media showing them luxury and are enticed every day to buy things they don't need.

In the US, the savings rate is awfully low, but it's not just the lower 50%, it's 75% of people who aren't saving what they should.

see http://web.stanford.edu/group/scspi/_media/working_papers/pfeffer-danziger-schoeni_wealth-levels.pdf for an interesting article on the topic of accumulated wealth.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.