In the Saturday, Sept 6, 2008 issue of the Korea Times, the front page story read “Private Spending Drops for 1st Time in 4 Years.” The story went on to say that people were spending more on telecommunication and medical services, but less on clothes and shoes.
The punchline of the story was that the people of South Korea are saving more of their disposable income now in response to a sluggish economy. How much do they save?
Compare that to the United States, where our savings rate has been close to 0. Here’s the chart from the US Bureau of Economics Analysis.
Some economists believe that our savings rate numbers don’t tell the whole story. They argue that the American net worth continues to dwarf that of the rest of the world.
The problem with that argument, however, is that it assumes that Americans are prepared to deal with the downturns in the economy without raiding their other forms of wealth, like the value of their homes, in order to ride out the storm.
The fact is that the current headlines throughout America are telling us that we are totally unprepared to deal with the downturn. We are raiding our equity, our retirement accounts, and our meager savings to sustain our excessive standard of living.
The Korean savings rate has inspired me to increase my own savings rate. We were already saving 20%, but we’ll increase it to 32% in honor of our hosts while we are stationed here.