The Savings Crisis Goes Abroad

The U.S. isn't the only nation with a savings problem.

There's another country whose savings rate has been steadily declining over the past 30 years. It was once renowned as a nation of savers, but social change has affected the way its people behave financially. And while its citizens have trillions of dollars squirreled away, it's entirely possible that the downward trend in its savings will never reverse itself.

The country?


A changing society
With a sky-high 23% savings rate 30 years ago, Japan is typically used as a model for wayward American spendthrifts. Now, however, Japan's savings rate is closer to 3%. According to a paper by scholars at the Policy Research Institute of Japan's Ministry of Finance, several factors have combined to reduce Japan's savings rate.

First, an aging population has shifted the overall trend of saving and consumption. In general, a person's spending and saving patterns change in similar ways over the course of their lives. During their working years, people have more money, so they can save more. Once they retire, they must rely on their savings for living expenses, and so they spend down their nest eggs and create a negative savings rate.

The paper also points to institutional changes in Japan -- such as reforms of the country's Social Security program, old-age pensions, and public long-term care insurance -- that have affected savings rates. If people know that the government will take care of major expenses in their old age, then they can save less.

Those institutional changes also influence global business activity. Because the Japanese government handles many retiree expenses, Japanese companies have a competitive advantage over other companies. For instance, carmakers Honda (NYSE: HMC  ) and Toyota (NYSE: TM  ) don't need to worry about the expensive benefit packages for their Japanese employees that competitors Ford (NYSE: F  ) and General Motors (NYSE: GM  ) do in the United States. In turn, those competitive advantages affect overall economic conditions and have a direct impact on income and costs of living. They, too, change people's saving behavior.

Finally, shifting lifestyle choices are contributing to falling savings. The paper cites statistics showing that fewer people in Japan than in previous years are willing to defer gratification by saving. Certainly, the extremely low interest rates that prevail there don't reward conservative savers. And the Nikkei still stands at less than half of its peak levels.

Look familiar?
Considering these factors, you might notice that Japan resembles the U.S. in many ways. As more baby boomers start retiring, they'll stop earning money and start spending down their retirement plans. New government programs, such as the Medicare Part D prescription drug coverage, have given seniors more options to cut their medical costs. Meanwhile, many Americans have lifestyles that challenge their ability to meet their current needs and wants -- without leaving any room for saving.

Meanwhile, as prudent as individual Japanese savers have been, the Japanese government has built up a huge national debt of its own. Currently, Japan's debt stands at about 835 trillion yen -- more than $7 trillion. As a percentage of gross domestic product, Japan's debt is higher even than the U.S. national debt.

What to do
Of course, at the individual level, there's nothing you can do that will greatly affect the country's savings rate. But the decisions you make for yourself will determine whether you can meet your own needs.

If you honestly evaluate how much you'll need to support yourself throughout your life, you can create a savings plan that will help you meet your goals. It takes a lot of work, but by bucking trends and saving diligently, you can make sure you won't become a statistic.

You can learn more about saving by reading about:

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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