Food for Thought: The Culture of Saving

I was going to begin by saying that I had never been good with numbers but I just realised that that would have been a rather blatant lie which would have been dismissed as swiftly as Mr Cameron’s proposals for companies to offer consumers their ‘lowest energy tariff’ at all times.

So, instead, I shall commence by saying that, even though I am generally quite good with numbers, there still remain some that I find rather perplexing.

A bright example of that is the fact that Chinese people put up to 30% of their income in savings. Initially, I did not think much of the above but then I remembered that China had kept growing at a steady pace for the past several years (7.6% in 2012) which meant that people should have been spending and not saving more ( see << http://www.theatlantic.com/business/archive/2011/03/how-we-spend-money-in-china-india-russia-egypt-brazil-and-the-us/73001/ >> ).

A possible explanation for the above is the fact that the inflation rate in China in 2012 was as low as 1.9% and the interest that was paid on savings during that year was between 2.6% and 4%. That, of course, meant that people actually GAINED something from depositing their money in a savings account (some 0.7%- 2.1% in REAL value).

In comparison, in the UK, for instance, the inflation rate for 2012 was somewhere between 2.7%- 2.9% and the highest interest rate that you could get was 2.25%. Consequently, it made NO SENSE to people to save as they got literally nothing out of their ‘savings’ (rather, they would lose some 0.45%- 0.65 %...).

Arguably, there were some UK fixed- term bonds that awarded 3.01% but would you honestly tie in your money for five years in today’s economic downturn? Also, would you say that the inflation rate would decrease in those five years? Not with a growth of 0.6%- 0.9% per year, it won’t (sadly, that’s UK’s growth for 2012…).

Another reason for people not wanting to save in the UK might well be the fact that the public trust in bank has been steadily diminishing since 2007 because of the torrent of scandals and fiascos that have taken place in those six years. In addition, to this day, the retail and investment sectors of UK banks have not been separated leads most people to believe that their money is being appropriated and misused.

In comparison, the ‘big four’ banks in China (the Bank of China, the China Construction Bank, the Industrial and Commercial Bank of China and the Agricultural Bank of China) are state- owned, keep their retail and investment sectors separate and are backed by the Government rather than private individuals which, theoretically, allows more scope for stricter control and regulation (yes, I am quite aware that UK banks were bailed out by the Government and taxpayer only recently but that is quite a different story which I shall discuss at a later point).

The above reasons may sound quite logical but it is this author’s belief that the Chinese have been told the same story that I was told some three years ago.

Do have a read.

A young man had had enough of life- he could not find a job, his partner left him, his family was constantly telling him how disappointed they were in him; it just wasn’t working out.

He decided that he was going to jump off a bridge and end it all.

Just as he was about to do that, an old man grabbed him by the arm:

‘What the Hell do you think you’re doing, young man?’ the old man asked.

‘I’ve had enough of life, I can’t take it anymore! I will end this and end it now!’ wailed the young man.

The old man smiled, took out a little piece of paper, wrote something on it, folded it and put it into the young man’s hand.

‘I shall give you this’; the old man said ‘to look at; promise me that you will look at it in the morning and then do whatever you want! But you can ONLY look at it in the morning!’

Although the young man was quite indifferent to life at that time, he promised to do so as his curiousity took over his senses.

He got back home, went to bed and, as he woke up, he unfolded the piece of paper; it said:

‘Things won’t stay the same forever.’

On the very same day, he found a new job and, in time, life took a turn for the better- he quickly became successful, found a new partner, bought a new house- he could not ask for more!

One day, as he was having a drink at a bar, he saw the same old man that stopped him from ending his life.

He was so happy to see him that he decided to show his gratitude by buying him a bottle of the most expensive whiskey coupled with the finest black caviar and white truffle and mango salad.

Looking at the abundance of expensive items before him, the old man’s smile faded; he patted the young man on the back and said:

‘Remember what I said; things won’t stay the same forever…’

To conclude, then, the Chinese might merely be cautious and smart about their future; a strategy that we must all make a note of.

After all, there are times of want and times of plenty; the best  and safest way forward is to be prepared for both at all times.