I’ve been on a bit of a personal savings rate kick lately. Why, you may ask? Because this one little financial ratio is a huge predictor of not only how responsible one is with their finances, but also how quickly that person may be able to retire.
As I highlighted last week before polling readers on their own personal savings rate, the average U.S. personal savings rate has been around 5% for the last few years.
That seemed pretty darn low. And it seemed even lower after I found out that percentage includes not only take-home savings and IRA contributions, but employee AND employer retirement contributions.
Naturally, I wondered how the citizens of our fine country stacked up against other industrialized nations.
I found an interesting chart from the Organisation for Economic Co-operation and Development (OECD), that highlights past and forecasts future personal savings rates by country for 24 of the largest GDP countries that publish this statistic.
In 2013, the savings rate from the most notable countries were:
- Australia: 11.1%
- Canada: 5.0%
- Germany: 9.9%
- Ireland: 5.0%
- Japan: 0.8%
- France: 15.4%
- Spain: 9.1%
- UK: 5.8%
- US: 3%
What can we take away from this data?
1. At Least Americans are not Dead Last
As bad as the U.S. personal saving rate looks, it’s not the worst. We came in 16th out of the 28 countries in 2013.
2. Canucks Like to Spend
Canadians have previously had a worse personal savings rate than Americans in recent years. This is in line with the data I found around U.S. vs. Canada consumer spending. Quite simply, Canadians love to spend their money on crap that they would be wise not to.
3. The Economic Impact on Personal Savings is Substantial
The U.S. personal savings rate jumped from 2.1% in 2007 (before the housing crisis) to 5.9% in 2009. I find it really interesting that when economic turmoil hits a country, personal savings rates in that country go up significantly. One has to wonder how much economies further suffer as a result of people hunkering down and reducing their spending.
4. The French Really Know how to Save
The French, who hit a 16% personal saving rate in 2010, have averaged over 15% per year since at least 2005. This makes them the most consistent savers of any industrialized country. That’s a bit surprising when you consider how high France income tax rates are (3rd highest).
5. The Danish do Not
The Danish have had a negative personal savings rate since at least 2005 and were the only country, on average, to achieve this feat in 2013. What’s the deal? Maybe their spending all of their earnings on Hasselhoff memorabilia. Oh wait, that’s Germany. No excuse, Danes.
Discussion on Personal Savings Rate by Country
- Do some of these findings surprise you?
- Do you feel better or worse about the U.S. personal savings rate after seeing this.
- What do you think the average personal savings rate should be in the U.S.?
It was rough times in Ireland 20 years ago with unemployment in the 20%+ level. We will never forget, and that is why we save so much.
Sadly enough, I do not believe Americans will keep up this paltry level of personal savings longer than 3-4 years. This is my personal opinion, but Americans have a bad habit of having selective amnesia, especially when it comes to remembering hard and painful times. Once this economy starts showing a healthy upturn, I think things will go back to the way they were before. Of course my opinion is not isolated to the US. I think this will be a global pattern.
It will be very interesting to see the statistics in 5 years. Will people have learned their lesson? I don’t think so, but time will tell.
If they up their automatic payment to a 401k they will not change their new, good habit. Only if their new savings rate involves a monthly active decision will they regress. God bless automatic savings plans!
This is interesting and certainly worth digging into. In addition to knowing more details about how these statistics are calculated, it’s also important to consider how the availability of social benefits affects these numbers.
Another thing to consider is culture. I live in Taiwan where collectivism and family are paramount. Here, your children are a substantial investment in your retirement. It’s very much expected that children take care of their parents in old age. Compare this to the extreme individualism of Americans who are (relatively) left on their own. So here, your IRA is sending your kids for private English, Math and Chinese lessons to stay ahead. I wonder what my education would have been like if my parents thought of me as their ticket to retirement.
Then consider the availability of social benefits in foreign countries. When I was a student in Europe a few years ago, I was surprised at just how much money people get from the government throughout the course of their lives. For example, money from the government because you are a university student. Pretty cushy compared to our system. And this was in a country where university tuition is unheard of.
In light of all this, it is amazing how little Americans are investing in their futures. It looks like our lessons about living within our means need yet to be realized.
Awesome blog, I really enjoy it.
Good point on education. I have heard this as well. It’s really a shame that today’s student is forced to graduate with an undergrad degree $100K in debt. Prices at a local university have gone up over 100% in just the last decade. We’re quickly pricing our young out of the possibility of getting an education while students in Europe can graduate debt free.
You forget to mention that countries such as Canada, the UK and Poland have higher tax rates, and thus, are expected to receive better government retirement benefits. Therefore, I would imagine the effective retirement savings rate to be much higher.
Not necessarily true. The U.S. includes 401K contributions, but not Social Security. So government entitlement programs are not included.
I think you’re missing the poster’s point, though (unless I’m missing yours). None of the countries include taxation in the savings rate. But countries like Denmark and Canada have more generous government-operated pension and healthcare plans than the US. An American retiring after (say) 30 years of minimum-wage labour, who wants complete health coverage (say, $5000 a year?) and a basic lifestyle that costs $15,000 a year, will need savings of $393,000 (at 3% “safe” withdrawal rate). The same Canadian will need savings of… just a sec… nothing.
That’s not to say that we Canadians are making SMART choices these days, though. I completely understand why people would choose not to save (fixed 5-year mortgages are under 3% right now, and housing prices keep increasing), but eventually we’ll pay the same price Americans have.
Old Age Security and government basic pension in Canada are not enough. People are required to rely on the company pension plan (which is disappearing) or on their own RRSP (the equivalent of 401K).
I cannot say for health care, but for pensions, I think Canadians are not saving enough. They are counting too much on the value of their house (risky bet).
American Social Security payroll contributions (which are actually higher than what Canadians pay in CPP and EI) pay for retiree Medicare benefits when they turn 65. Health insurance is more an issue for Americans under 65
Haha, I am French, and I approve this post.
More seriously, thanks, I think it’s really interesting to see how things work in other countries. I have been living in the US for 3 years now, I’m still discovering things every day ;-)
I am proud of my fellow Americans for keeping this current rate of savings that we do considering that our country probably has more selections of goods available to us than anywhere else in the world. Lots of temptation indeed.
As an Australian reading an American blog, it is very interesting to hear you say that Americans graduate with average 100K education debt.
I have one more year of Masters to go (Bachelors + Hons + Masters) but at this time I only have 8K debt, which is negligible in comparison.
As another Australian, I graduated from a Diploma course with no debt. Nothing like a Masters. But still, my entire course was capped at $1,500 per year. The government paid for any costs above that as I was not working at the time.
Very cool report! Funny how the Irish know how to save their individual incomes yet their government is inline for an EU bailout….
Yep… This is only savings… meaning an enabler for investment. This does not speak about what the govt borrowings are and how they are spending it..!!
Americans aren’t saving more so much as lenders have been taking uncollectable debt off their books. For example, if an American walks away from a mortgage, that’s considered less debt, hence more “savings”.
The problem is that saving in the U.S. just doesn’t pay at the moment (and hasn’t for almost 15 years). I remember as a kid getting a $500 24-month certificate of deposit at a local bank for my 12th birthday, which paid a whopping 9% interest. Now, with ten times that much money you’re lucky to get 2%, and you pay a penalty to withdraw early. Regular bank accounts pay hardly anything, if anything at all–of the three I have, one pays nothing, and the other two pay less than half a percent APY.
Savings isn’t just bank accounts and CDs at 0-2.5%, it includes 401k/IRA which average around 7-8% over the long-run. Not sure if the personal savings rate includes 401k match.
My company matches 67% up to 10% of my gross pay, so if I put in $7500, they put in another $5000. Further, tax deferred, so when I put the $7500 in, I’ll save about $2500 in state and federal taxes, so it is essentially $5000 out of pocket possibly going on the books as $12500.
If you think of it Household Saving Rate doesn’t mean a lot about emerging risk alone. I mean if you combine this observation with average household debt (leverage) then it should become a powerful indicator. Think about it low saving rate doesn’t really equate to high debt rate or vice versa.
Is this savings rate minus personal dept data available? Think you have a point.
Wow, Japan has a personal savings rate of less than one percent? Wasn’t it somewhere in the 40 percent range recently?
My 2018 expense was 15000 and my total pre-taxed income+bonus+match is 99000. My saving is 99k-15k-11k(fed and state tax withheld)=73k. I think tax should be taken into consideration because that money is not in my net worth.
But my net worth gain for this year is a bit lower with the Oct-Nov-Dec stock market correction which caused the YTD return to be red (~-10%).
Very interesting post. The US savings rate seems low, but considering we’re a nation driven by consumption, it shouldn’t come as a big surprise.
Saving is equal to the difference between disposable income and final consumption expenditure. The net household saving rate represents the total amount of net saving as a percentage of net household disposable income. A negative number indicates that the economy as a whole is spending more income than it produces, thus drawing down national wealth.