Lessons on How to Save, from China

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Why are Chinese households so much better at saving money than their American counterparts?

This week, The New Yorker‘s James Surowiecki argues about how, for the sake of the Chinese and the world’s economy, the average Chinese citizen must become a better consumer. Better, in this case, equating to saving less and buying more stuff. Chinese households save about one-quarter of their disposable income. Yes, 25%. That’s good for the savers, but apparently bad for the country’s economy, and apparently bad for the overall quality of life in China.

I’m not going to pretend to understand how global economics works. I have no idea what the impact would be if the average Chinese worker spent 10% more or so on clothes or dining out at restaurants. Would there be a ripple effect sent across the world that somehow helps a laid-off automotive worker in Detroit get a job? No clue.

But I am fascinated with why, and how, the Chinese people save. What can we learn from them? If the Chinese need to become “better” consumers, then maybe it’s time that Americans become worse consumers. Worse, in this case, equating to saving more and buying less stuff.

So how do Chinese workers do it? Actually, let’s start with the why. As Surowiecki explains, there really aren’t many safety nets in China, and so a family’s savings is essential when things go wrong:

Paradoxically, in this still putatively Communist society, families for the most part have to fend for themselves. Health insurance is limited in what it covers and far from universal, so getting sick can be a costly proposition. Only a fraction of the workforce receives unemployment benefits, while pensions are underfunded and haphazardly administered. A scarcity of student loans and subsidies for higher education, meanwhile, means that paying for college requires hefty savings. The inadequacy of the social safety net forces the Chinese to engage in “precautionary savings,” buffering themselves against disaster.

What’s funny (sad? ironic?) is that, to a certain extent, so many of these issues also apply here in the U.S. “Getting sick can be a costly proposition … pensions are underfunded and haphazardly administered … paying for college requires hefty savings.” Sound familiar?

The big difference, I’m thinking, is that there’s a widespread assumption in the U.S. that things will always somehow work out. Somebody will be there to help if and when things go wrong. When you think that way, saving is nice and prudent, not desperately essential. Your life, and the lives of your kids, are not depending on your ability to save.

As we’re learning, however, things don’t always work out, and your health sometimes is dependent on your ability to save. Huge hospital bills, for instance, are increasingly becoming the prime reason people go bankrupt, even when they have insurance. When we assume that somebody will be there to help us, perhaps we’re assuming too much.

If you truly want to save more, what should you do? Pretend you’re living in China, where your savings is really your only safety net. Save as if it was desperately essential—because down the line, it may prove to be just that.

Now, the how of saving. In China as in most places, saving basically comes down to not spending, to going without.

The WSJ recently excerpted part of Jason Zweig’s The Little Book of Safe Money, which has loads of very simple ways to save a little money here and there, which can add up to substantial money the longer you tough it out. Some examples:

Conserve energy. Set your home’s thermostat to 65 degrees in winter and wear a sweater. Before you go to bed, set it down to 60 degrees and use a second blanket if needed. In summer, set the air conditioning at 70 degrees. Adjusting your home thermostat wisely could save hundreds of dollars annually.

Don’t buy lunch every day. Instead, make and take your lunch to work. Better yet, pull together a brown-bag club with a few friends, with each of you bringing your own food plus something to share. You could save another $1,250 a year.

Don’t sign up for insurance, service contracts or extended warranties. Avoid the added cost of these extras for appliances and consumer electronics — especially on things like cellphones, which you probably won’t lose or damage and are likely to use for only a couple of years.

Rent DVDs free from the library. Depending on how often you rent, you could save $100 or more a year.

Ah yes, I’m a big fan of the library, and have some thoughts on extended warranties.

Listen: This stuff isn’t complicated. Most people know they should be doing these kind of things, but they just don’t do them for whatever reason. If you look closely at Zweig’s advice and other savings tips that really work, they’re rarely about getting more for less in the BJ’s-Sam’s Club-Costco manner. They’re mostly about going without, or getting less and paying much less. Saving is mostly about little sacrifices, little behavioral shifts.

In other words, saving money often comes down to being a “bad” consumer.

Some more savings tips:

A List of Money-Saving Lists: 422 Ways to Save in Total
261 Freebies and Cheapskate Tips