How the U.S. Compares to the World with Savings Rates

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“You can be young without money, but you can’t be old without it.”

— Tennessee Williams, American Playwright

 

I read this quote the other day, and it really struck me.  On the radio, I constantly hear reports about the next wave of government employees that have resigned or plan to retire by the end of this year.  The GAO reports that more than 1 out of 3 federal employees will be eligible for retirement by 2020.   

 

Government Retirees

While I know that the government offers a nice pension, I wonder how many of these people will actually retire from the government.  In the DC area, there seems to be a wide gap between the number of people that are eligible to retire from government service and the number that actually retire from the government.  

 

People may decide to continue working because it gives them purpose, because they enjoy the socialization of work, or because they don’t have enough for retirement.  Either way, the number of retirees always seems to lag behind the expected amount.

 

After talking to a lot of government folks, many of them feel completely unprepared for retirement.  While a pension is nice to have, a lot of these people have not saved properly for retirement and need to continue working for the foreseeable future.

 

I had one person tell me that he would probably die at his desk because he had not saved up enough.  

 

When I hear stories like that from older folks, it is a huge wake up call to ensure my finances are in order right now.  I’d prefer to enjoy retirement and not die at work.

 

Savings Goals

One of the goals that I set for the year is to save 70% of my take-home pay.  Through September 15, I am slightly behind that goal, as we are saving 65%.  But, I am hoping to improve this by the end of the year since many of our most expensive bills have already been paid for this year.

 

While I know most people don’t set goals like this, I wondered how much the average American saves.

 

Average American’s Savings

According to the latest data from July 2017, the St. Louis Federal Reserve reports that personal savings rate in the U.S. is a paltry 3.5%.  This figure has been slowly trending down since December 2012, when the personal savings rate reached its high of 11.0%

 

US Savings Rate

 

3.5% is mind-boggling.

 

That figure includes the take-home savings, IRA contributions, and the employee and employer retirement contributions for their 401(k)s.  This is downright disheartening.

 

Impact of Recessions

Highlighted in grey lines are times of economic recession in the U.S.  As you can see in 2005, at the height of the housing market bubble, Americans were saving a paltry 1.9%, as we were feeling really confident about the economy.  

 

However, when a recession hits, Americans typically start to trim the fat from their budget and increase their savings rates.  Once they start to feel good about the economy, they start to loosen their belts once again.

 

Impact of Taxes

You may be wondering why the savings rate spiked in December 2012.  This was due to the 2013 tax hike.  Many companies paid out bonuses and dividends to their employees and shareholders to avoid the increase in taxes.

 

Savings: US versus Other Countries 

If the U.S. is supposed to be the world leader when it comes to the economy,  I wanted to know how the U.S. compares to other countries in terms of savings.  

 

US Savings Rate

OECD (2017), Saving rate (indicator). doi: 10.1787/ff2e64d4-en (Accessed on 16 September 2017)

 

Can you say, “Not good”?

 

We weren’t anywhere close to the top when it comes to savings.  It’s never good when you have to count from the bottom, which the U.S. is 11th from.  While the U.S. is not at the very bottom (congrats Greece), it’s not too far behind.  

 

Why the Chinese Save So Much

What really struck me from this chart though is how much money the Chinese are saving, 47.1%.  That is double what Chile saves at 21.4%.  While I was aware that the Chinese were prolific savers, I had no idea that Chile was #2 on the list.  

 

It turns out that every employee is required to contribute 11% of their salary into a retirement account by law.  The employee chooses their risk tolerance, and then the account automatically begins to act as a target fund, as the amount of equity is reduced each year as the employee ages.  By the time the employee reaches retirement age, their investment is automatically auctioned.  At that point, the retiree receives a guaranteed annuity the rest of their life.  

 

I found that really interesting to learn, and hopefully you did as well.  

 

Canada?!

Now, my friends to the north: Canada, what are you all doing?

 

I thought the U.S. enjoyed consumption, but wow.  2.5% is a full point lower than the U.S.  I never would have thought that Canadians would buy more stuff than the the U.S.  But clearly they do!

 

Based on the above charts, it appears that the U.S. is not the only country that is struggling when it comes to saving for retirement.  While I would love to see the U.S. save 40% of their income like China, I’d be happy to see the average American save 10%.

 

So readers, what do you think?  Were you surprised by the findings?  Did you think the U.S. would do better or worse than other countries?  Share your thoughts below.

Mustard Seed Money

Welcome to the website. A mustard seed is a very small seed but astonishingly grows very large over time. My hope is that through your financial journey that your small investment in time, money and faith will grow beyond anything that you could ever imagine.



62 Comments

  1. I’m always amazed when looking at these kinds of numbers. The economy is booming and yet here we go again not saving and racking up debt. 2008 was not that long ago people.

    I would have expected us to be on the low side as we are known for our ability to consume. Little disappointing to see we are that low though.
    Grant @ Life Prep Couple recently posted…GUEST POST: A UNIQUE GIFTMy Profile

    • I definitely wish that people would save more!!! When times are good we should be saving for those rainy days. Seems like we continue to repeat the same mistakes over and over…

  2. I was shocked to see Chile ranked so high! When I lived there I dutifully contributed 11% of my paycheck into a target fund. It’s still sitting there growing, so if Mr. ThreeYear and I ever move back it’ll be waiting for me. I didn’t think you had to take an annuity when you retired, unless the rules have changed. I think that’s one option, and the other is that you can take a set amount of principal each year, but I could be wrong. But wow, what incredibly low amounts our society encourages us to save! I’m hoping the FI movement starts to turn the tide there. I don’t know if we’re a big enough movement, but people like you who save 70% and me (a paltry 45%) and all the rest of us have got to be tipping the balance somewhat? There are some major forces underlying all our consumption patterns, though, that aren’t likely to change in the near future.
    Laurie@ThreeYear recently posted…Is Focus is More Important than Intelligence?My Profile

    • 45% is not paltry that’s amazing!!! That’s really cool that you stocked away 11% in Chile and are able to drawn down on it in the future. That’s gotta be a great feeling. Plus living in Chile must have been amazing 🙂

  3. Hi MSM,
    Always interesting to read, and it scares me just how little most people are saving across the globe (I knew the Chinese saved, but Chile was a new one for me!).
    Just look at the UK – I think recently there was another article which showed as a nation over here we save less than 2% of income…seriously?
    There really is a need for better financial education..
    Cheers,
    FiL
    FIREin’ London recently posted…Aug ’17 – Go T’ Pub PerformanceMy Profile

    • I’ve never understood why folks don’t save when times are going well. Seems like prime time to save when the going is good. Oh well, seems like we repeat the same mistakes.

  4. Great info, thanks for sharing. I work with a number of Asian immigrants and can confirm that they do try to save as much as they can. One thing I’ve noticed is that they leverage their familial relations to reduce child care expenses, whereas the other parents in my office seem to spend money on child care.

    I know individual circumstances play a huge part in this but I’m noticing a trend.

    Anyways, thanks for doing your part to help us increase our savings rate!
    Wes recently posted…Aaaand he’s back!My Profile

    • Thanks for stopping by Wes!!! I’ve noticed quite a few Asian households in my neighborhood with multiple generations living together. One indicated that they buy a house together then help each other buy houses until everyone is living in their own house debt free. Really cool in principle 🙂

  5. My in-laws are Chinese, and I can attest that they save a lot. I think there are a couple of reasons. First, the economy in China is not credit card driven. It’s not common for people to have access to credit card unless they can show that they are financially secure.

    Second, the social security system is relatively weak, prompting people, especially those in rural areas, to save up and fend for themselves when they are retired.

    Third, they just like to save because it is considered a good virtue according to Confucius.

    I think there are a lot more reasons, but these are the few that I can think of.
    Ms. Frugal Asian Finance recently posted…5 Reasons Why I Don’t Wear Makeup (Money Is Only One Reason)My Profile

    • Thanks for sharing some insight based on your experience!!! That makes a ton of sense, especially if you don’t think the government is going to take care of you. I’d wonder what would happen if we lost that security net. Hopefully it would encourage people to save more but I’m not convinced…

  6. I’m not surprised the US has such a crappy savings rate, but it makes me sad. What the heck are the people that don’t save going to do when they get older?

    People used to talk about the three legged stool that supports retirement – social security, pension, and savings. That kind of worked when there were more pension and people saved more. Now, most people just have a single-legged, social security Pogo stick. Good luck with that.
    Mr. Freaky Frugal recently posted…Investing attitudeMy Profile

    • That’s a great visual with the pogo stick. I definitely agree people are too dependent on social security. I’d love to know what people think they’ll actually get to live off of, especially when social security doesn’t pay that much money.

  7. I am Canadian and I was shocked to find out we out consumed you guys. I knew that our culture here up north pretty much is a mirror image of the south, but we are a full percentage below? This is crazy. I am glad that I am Chinese Canadian. If I was able to save anywhere close 47% of my earning, I would be sitting at a beach right now.

    Think that when people say that they like the socializing at work and don’t like to retire, they are lying to themselves. The proof is in the savings rate data.
    Leo T. Ly @ isaved5k.com recently posted…12 Personal Financial Questions That Everyone Should KnowMy Profile

    • Thanks for sharing Leo!!! I would love to be sitting on a beach somewhere, which is why I’m continuing to save as much as possible. Hopefully one day I will be able to 🙂

  8. Makes sense that the savings rate is so low in the US. People don’t make enough money on average from their salaries and everyone wants a house, cars, vacations, the latest gadgets, and eating out at restaurants among other things. There isn’t much money left to save after all the expenses.
    Jeff @ Maximum Cents recently posted…DIY: iPod Battery Repair Under $5My Profile

    • I definitely agree Jeff!!! Too many people are worried about consuming and keeping up with the Kardashians. Not enough people are worried about saving for the future which is sad.

  9. I was shocked to read that Canada saved less than the U.S. and Chile saves more. I talk to people who also say that they will work til they drop. That is not a practical plan on many levels. I do not know what people need to hear to change their spending ways.
    Dave recently posted…How to Invest A Million DollarsMy Profile

  10. The China bit actually suprised me given the business and government spending there seems to be like here’s is no tomorrow. Heaven help their economy in the next recession as it is entirely built on growth. But what’s tied to the economy is not necessarily individual related.

    I’m not surprised on our own position. We have a culture of spending. Even in housing it’s true. Until recently living at home after graduation was looked down on. Yet in other cultures they do so until they are married and can then buy their own place.
    FullTimeFinance recently posted…World of Business Travel: Good, Bad, Career Boosting?My Profile

    • It’s definitely unfortunate that we have such a consumer mindset in the U.S. It’s time to buck up and do something about it. Otherwise we are going to be in some serious trouble in the future.

  11. Damn, that’s pretty grim for me, being a UK native in Canada I have one of the worst combinations for savings rates. I can’t believe how high China’s is, surely they’re all eligible to retire early at that rate?!

  12. I’m not surprised to see the U.S. doing so low. It’s so easy even for younger people to get a credit card and start charging stuff. We have crazy deals all the time enticing people to spend like black Friday one-day sales and such. Maybe we should implement the mandatory savings system like China; start off at a lower percentage but something to boost the country’s savings overall. Thanks for sharing the data!
    SMM recently posted…Simple REIT Analysis – AGNCMy Profile

    • It would be interesting to see what would happen if the U.S. mandated savings like Chile. I’d think people would scoff at first but in the long run it’d totally be worth it.

    • It’s interesting to see how when things get bad people tighten their belts and when things are good loosen a lot. Seems somewhat counter intuitive since when things are bad you’d think they’d can’t save more. But clearly I’m wrong 🙂

  13. Always disheartening to hear stats like this. Imagining millions of Americans unable to retire or living in extreme poverty during retirement is so sad. It’s easy to judge many people as being too consumerist or mindlessly buying stuff to keep up with the Joneses, but unfortunately there are plenty of others who are truly struggling to even save a paltry amount. Making it more feasible for low wage-earners to save is so important, but we also need to keep preaching financial wisdom to those who COULD save more but CHOOSE not to. I hope nobody reads these stats and uses them to justify their own low savings rate (the whole “you’re not alone in this” mentality) but to spur them on to better choices.
    Mrs. COD recently posted…Change Into Who You AreMy Profile

    • I definitely agree that we need to help figure out how to encourage savings in America. I’m not sure what the answer is but hopefully education will go a long way towards it.

  14. Two questions:
    1) “It turns out that every employee [in China] is required to contribute 11% of their salary into a retirement account by law.” That’s still a long way from 47.1%. Are those number comparable? To be frank, I don’t trust any number put out by the Chinese government. I remember when they reported defaulted loans. They kept the number artificially low by extending the terms of government loans so they were no longer in default.
    2) “In the DC area, there seems to be a wide gap between the number of people that are eligible to retire from government service and the number that actually retire from the government.” I’m not sure what can be inferred from that. Typically that number reports people who are eligible for any form of retirement including what is typically called “early retirement.” If you are including federal law enforcement, their minimum retirement age is quite low. I would also argue that maybe federal workers like their jobs so they don’t retire. Two stereotypes of federal workers: 1) low stress jobs, impossible to get fired, come in for 8 hours, get a paycheck, pad your pension. 2) incompetent workers, wouldn’t get hired anywhere else, impossible to get fired, keep working because they can’t do anything else. Again these are stereotypes. I’ve encountered federal workers who appears to conform to these stereotypes and others who very dedicated and intelligent. However, people who work for the federal government do so for a reason. You choose your employer and an inflation-adjusted pension backed by the federal government is frequently one of the main factors in selecting the federal government as your employer.

  15. I always like seeing these stats because I don’t know much about the international personal finance trends. I remember hearing the “Feed the Pig” radio commericals in 2007 and 2008 that said the U.S. had a negative savings rate. We saw what happened there once the chips hit the fan.

    Outside the blog, we try to have conversations with our colleagues as much as possible to discuss how we are doing our best to get out of debt before the next recession hits.
    Josh recently posted…Stop Credit Card Offers From Entering Your MailboxMy Profile

    • Thanks for sharing Josh!!! I must have missed those feed the pig commercials they sound amazing. I am definitely all about feeding those piggies as much as possible 🙂

  16. Great charts. I specifically like the savings after a recession. Yes here in Canada debt is definally a problem. Now that interest rates are rising hopefully that opens peoples eyes again. If it does become a problem the ones who saved and have money will really get some nice buying opportunitys. Ie cars and real estate. Chinas saving is incredible.
    Passivecanadianincome recently posted…Fish On! Hooked on HighlinerMy Profile

    • There are definitely advantages to saving when the market goes down. Things are on sale and you can get some great prices on lots of things 🙂 I’m a discount shopper for sure, especially when it comes to stocks 🙂

  17. See charts like these always cause me to shake our head. It is a great reminder that while we are a great community here that motivates each other and pushes each other to save as much as possible, we are clearly in the minority. I always wonder/struggle with how can I reach other people that are not actively seeking personal finance advice. I would love to see the savings rate start to creep upward.

    Thanks for the read.

    Bert
    Dividend Diplomats recently posted…Bert’s September Stock Watch ListMy Profile

    • Thanks for stopping by Bert!!! I am actively trying to figure out the same question. I have some ideas that I am trying to put into order but we’ll see if it actually works. Hopefully I can report out on it soon 🙂

  18. I am not surprised that the US has such a low savings rate, I think that kind of goes along with our general culture of over consumption. I was however surprised that China and Chile are so far ahead of us. And I was shocked to learn this about Canada!
    That you for sharing the charts, I especially like that the one goes back to the 1960s. I would be curious what savings rates were like before that, if there is any data. I wonder what year was our peak savings rate in the USA.

    • Unfortunately I couldn’t find much data before that. I’m not sure if that’s because they chose not to study it or if there were other reasons. However, in the span of almost 60 years it’s incredibly interesting to see 🙂

  19. Yikes! I figured the U.S. savings rate was bad, but this is terrible. Especially when you know there are so many baby boomers on the verge of retiring. Just don’t know what these people are going to do. Some may actually be dying at their desks. Sad.

    • The savings rate is definitely too low. Hopefully with things going well they get a kick in the pants to turn things around. Otherwise some people will definitely be hurting in the future.

  20. I agree it is amazing how much the Chinese save. Especially given their relatively smaller incomes. I interviewed several Chinese people about that on one of my trips there. I believe the numbers are accurate based on the people I talked to. They tend to have a long term perspective and want to have money set aside for future needs, children’s education, retirement expenses etc. Ironically they don’t expect the government to rescue them from their troubles the way supposedly capitalistic Americans seem to.

    • Thanks for sharing Wealthy Doc!!! That’s really interesting that with the safety net gone that they are more likely to save. It makes sense and I definitely wonder at times if social security is potentially hindering Americans as they think they’ll have more available for retirement than they actually will.

  21. One of the concerning things about the U.S. figure is the fact that there’s a small component of the average (probably represented well here) saving at extremely high rates – so that means there’s a group of folks saving even less to arrive at that average. Scary stuff

    • I totally agree with you. With certain segments of the population not saving at all, it’s going to get pretty dicey out there. Hopefully they’ll be able to catch up but the numbers normally do not support that.

  22. Savings rate numbers like these are very deceptive. Countries like Canada and Japan enjoy a strong “social contract” with things like health care or retirement pensions covered. The exact opposite is true in places like China — They’re on their own when it comes to paying for healthcare or retirement.

    So yes, countries like Canada or Japan have lower savings, but those are *real* savings, not the shifting of social costs to the individual.
    Mr. Tako recently posted…Phoning It In (2017)My Profile

  23. From a different point of view. When you will get a pension and have some savings (even as a result of that low percentage) you will have something to live on. Maybe not on your current level, but probably you will be able to cover your minimal needs. If you are lucky enough you will remain healthy enough to do some hustling. So while this is not a goal I would work towards myself, the future is not so dark over there. As I look at the people around me in my country I really think that for most of them working will be mandatory till the end. The more fortunate ones will live on a scarce pension and only the most fortunate ones will be able to live on their savings.

    • Thanks for sharing HCF!!! I definitely agree if you have a pension to live off of that you are definitely going to have a different lifestyle than those that aren’t afforded the same. I am definitely thankful the pension that I have available 🙂

  24. I am surprised to hear that the savings rate is that low given that the number includes 401k contributions. It often baffles me that people don’t elect to utilize 401ks, especially when there is a match. On the stats, though, I wonder how the savings rate is calculated for people who are self employed?

  25. I wish I was more like China, but I am just a little above Chile. My wife, unfortunately, is currently like Greece, but part of that is her employment situation isn’t as stable as mine. So I make up for her by saving more. Also, I wonder what would happen if we considered home ownership a form of savings. How would America stack up vs. other countries that don’t have a larger propensity for home ownership.
    Jason recently posted…Another Housing Blues PostMy Profile

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