Beyond Our Means: Why America Spends While the World Saves

July 01, 2012

Japanese savings poster

Postal Savings Poster, Japan, 1936: “Diligence, Thrift, and Savings Day, March 10.”
Source: Ysei Kenkyjo Fuzoku Shirykan, Modanizumu no jidai to ysei postaa (Tokyo, 1997). Courtesy of the Communications Museum, Japan.

If the recent financial crisis has taught us anything, it is that Americans save too little, spend too much and borrow excessively. Millions of people today lack the savings to protect themselves against foreclosures, unemployment, medical emergencies and uncomfortable retirements. How did Americans come to be such miserable savers? What might they learn from European and East Asian countries that boast higher household saving rates?

Over the past two centuries, some nations have aggressively encouraged their citizens to save by means of special savings institutions and savings campaigns. The resulting cultures of thrift have proven remarkably enduring in several advanced economies and challenge mainstream economic analyses of saving. Economists generally believe that households save according to universally “rational” calculations. People supposedly save the most in their middle years as they plan for retirement, and save the least in welfare states. In reality, continental Europeans save at high rates despite generous welfare programs and aging populations. Surprisingly, Americans save little despite weaker social safety nets and a younger population.

Beginning around 1800, European reformers and governments became preoccupied with creating prudent, self-reliant citizens. To encourage “humble” folk to save, the proponents of thrift established philanthropic savings banks that accepted small deposits and paid interest. Later, governments instituted postal savings banks that enabled small savers to open state-guaranteed accounts at the nearby post office. Officials also created school savings banks designed to teach habits of thrift to future adults. Japan, too, adopted and improved European savings institutions. The Japanese postal savings system is today the world’s largest bank.

Countries soon regarded thrift as not simply good for the soul, but as a matter of national survival. In the two world wars, the warring nations ran massive savings campaigns. World War II ended in 1945, but savings campaigns did not. From London to Tokyo, austerity campaigns exhorted people to “Keep on Saving” to finance recovery. Thereafter, enduring cultures of thrift continued to restrain the expansion of consumer credit. More recently, states in the rest of Asia—including China—emulated the Japanese model of mobilizing savings to finance economic growth.

How does the United States fit into this global history of saving? Rather uncomfortably. At times, America encouraged saving as much as Europeans and Japanese. Savings banks sprang up after 1800, followed by building and loan associations. Yet these institutions remained confined to the Northeast, Midwest and the Pacific Coast. The vast majority of Americans in the South and West lacked a basic savings account a hundred years ago. Likewise, school savings banks thrived in some places, but failed to reach many American schoolchildren. Although most advancing economies had introduced postal savings by the 1880s, the U.S. Congress did not enact postal savings legislation until 1910. Weakened by compromise, the postal savings system never attracted more than a tiny fraction of American savers, and in 1966 it was abolished. Most Americans became regular savers only after the federal government intervened to promote saving in the 1930s and ’40s. Established in 1934, the Federal Deposit Insurance Corporation insured smaller deposits in banks. This was followed by the government’s successful campaigns to market small-denomination U.S. savings bonds during World War II.

After 1945, however, America again diverged from patterns of savings promotion in Europe and East Asia. The United States emerged from World War II extraordinarily rich while other countries were rebuilding war-ravaged economies. Politicians, businessmen and labor leaders all encouraged Americans to spend to foster economic growth. An array of policies also stimulated the growth of homeownership, which further increased consumer spending. Beginning in the 1980s, several developments combined to stop millions of Americans from saving altogether. Deregulation permitted the financial industry to offer massive amounts of credit on strikingly favorable terms—even to very poor households and students. The new instruments included credit cards, home equity loans and subprime mortgages. Many Americans wondered: Why save when I can buy things with easy money? When the housing bubble burst in 2008, so too did this unsustainable culture of debt.

It is noteworthy that most other big economies did not embrace the American credit revolution. Home equity loans are rare in Germany and Japan, and few consumers in continental Europe use American-style credit cards that allow one to borrow on unpaid balances. Moreover, European governments more strictly regulate the sorts of predatory lending that have impoverished so many Americans.

So, what might the United States learn from its own history as well as policies elsewhere in the world? To restore our household balance sheets, government must do more to regulate predatory lending while improving Americans’ access to savings institutions. Currently, banks discourage young and lower-income people from saving by charging excessive fees and requiring high minimum balances. One promising approach would be for the government to revive small savers’ accounts at the post office. Financial education classes should also be offered in all schools nationwide.

Americans pay little attention to how other nations promote saving and protect their citizens from overindebtedness. This may be the time to start.

Sheldon Garon, Nissan Professor of History and East Asian Studies at Princeton University, is the author of Beyond Our Means: Why America Spends While the World Saves (Princeton University Press, 2012). He was also the keynote speaker at “The New American Challenge: Learning To Save To Build Wealth,” an event held in April 2012 at the St. Louis Fed that also featured Michael Sherraden of Washington University; Bill Emmons, assistant vice president and economist at the St. Louis Fed; and Ray Boshara, St. Louis Fed senior advisor and community development policy officer. Boshara is coordinating the Bank’s initiative on Household Financial Stability, which sponsored the event. View video at

Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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