Everyone knows that a country that wants to be rich must invest in products and services. But to do that, there must first be savings. It can be said that saving is the source of investment. In which, the savings rate is an indicator reflecting the saving capacity. So what is the savings rate and what factors affect it? The following article will give you a brief overview of this issue.
What is savings rate, and how to calculate the savings rate?
The savings rate is a measure of how much an individual can extract from his or her disposable income to invest, expressed as a percentage. You need to remember here is disposable income, ie income after deducting all expenses, including living expenses, finance, etc.
Example: A person goes to work with a salary of $1500, his living expenses are out of $1200. Thus, this person will still save $300. Therefore, the savings rate will be equal to 3/12*100% = 25%.
What factors affect the savings rate?
Basically, these following factors will affect the savings rate:
- Economic and social conditions: The health of the economy and social stability are closely related to the savings rate. When the economy goes up, the society is stable, people tend to consume, invest more, leading to a lower savings rate. The opposite is also true, when the economy is unstable, people tend to save more, leading to an increase in the savings rate.
- Income and wealth: There is a strong correlation between GDP per capita and saving. Low-income people spend most of their money on living expenses and buying essential goods. Meanwhile, the wealthier people still shop for luxury goods, but save more.
- Changes in market interest rates. High lending rates lead to a decrease in consumption, which in turn increases the savings rate.
- Cultural factors: Asian cultural countries tend to save more than countries of the same income, due to the influence of Confucianism.
Savings situation in different countries
According to Investopedia, Macao has the highest savings rate in the world, with 64.3%, followed by Congo, with 61.4%.
Southeast Asia has two countries in the top 10: Singapore with 53.8% and Brunei with 54.5%. China ranked 10th with 44.9%.
Meanwhile, the US has a relatively low savings rate. Over time, the savings rate in the US has been decreasing. The savings rate in the US fell as low as 3.5% in 2005, and by 2019 it was 7.9%.
It is understandable that the US is a consumer economy, and Americans are known for having high incomes but they have to bear a lot of costs, such as renting a house, borrowing money to buy a car. The culture in the US also places a high value on “swiping credit cards”, leading to Americans often having to deal with paying their credit card bills. The COVID-19 epidemic has upset Americans’ spending habits, and the economic downturn forces them to save more. The savings rate peaked at 33% in April 2020, but then gradually declined to 14.3% last September.
