0.20 General introduction to savings mobilization  (Page 3/9)

In lower middle income countries private sector savings constitute 75% of the total.

For upper middle income countries (e.g. Korea, Malaysia, Brazil) private sector savings is well over 90% of total domestic savings.

We can see that for most of the world, private savings are by far the principal source of domestic investment finance.

When we later add foreign private savings, we will see that private savings are overwhelmingly the source of investment finance around the world, since most foreign savings flowing to emerging nations are private saving, not foreign aid.

CAVEAT : There is more to the story. Canada as outlier – rate went up .

Chinese savings rates discussed next week.

Role of demographic factors? May be very difficult for U.S. vs. EC or Japan.

A special case: saving in china

The Chinese experience since 1980 is so distinctive – and so important for world savings – that we will delve more deeply into Chinese savings than will be the case for other nations. So high were savings in China that by 2011 the Chinese government had actually begun to encourage households to save less, and consume more, so high are their savings propensities.

Eleven reasons why the national savings rate in china has been so high (since 1980)

1. Chinese savings are high because Chinese income has been growing so rapidly - circa 10% per annum. (This mirrors Japan’s experience 1950-1990.) (Before the decade-long Japanese recession).

2. Chinese families stress savings because the benefits offered by the governments’ social security system are so small (less than $200 per capita total – not per month but per year).

3. No More “Iron Rice Bowl”
Mao Tse-Tsung habitually spoke with great pride of the Communist party’s “Iron Rice Bowl”A full bowl of rice for every meal for all families – This was said (by MAO) to be a cradle to grave – guarantee of sufficient food (esp. rice, shelter, etc) to be paid to all citizens whether employed or not.

There is no more Iron Rice Bowl. So citizens must put aside a large buffer of savings in case they become unemployed.

4. Chinese families now need a buffer of savings to finance health care, since provision of public health services is very limited, especially in rural areas. Note: many Chinese villagers lack health clinics, but many of them have sonar machines.

5. To an extent not common elsewhere (except perhaps Vietnam) do Chinese families strongly value good primary and secondary education for their children (actually, their child, not plural- one per family).

Public schools do not meet expectations of millions of Chinese families, so these families stress savings in order to finance private school for children.

6. The Savings Rate and the one-child-per family policy: The demographic consequences of this policy have – as you would expect – increased the need for savings for old age. Why? Fewer children to support people who have reached old age.

7. Difficulties facing Household Borrowing: Families in North America, Europe and Japan undertake substantial borrowing to finance purchases of homes, to finance purchases of appliances, etc.