Household saving is defined as the difference between a household’s disposable income (wages, income of the self-employed and net property income) and its consumption (expenditures on goods and services.)

Author: Tiziana Barghini
Project Coordinator: S.J. Yun

Next Page: Saving Rates By Country

Household saving rates can be very different amongst different countries, as they depend on a myriad of institutionally and structurally different factors such as unemployment benefits, ease of access to the credit market, cost of education, aging of population, structure of retirement pensions and health coverage. In some countries such as the United Kingdom and the United States, saving rates fell to record lows ahead of the financial crisis and the recession of 2007-2008. Since then saving rates moved up, but the downward trend has resumed in the most recent years and it is expected to continue to do so through 2015.

The household saving rate is calculated by dividing household savings by household disposable income. A negative savings rate indicates that a household spends more than it receives as regular income and finances some of the expenditure either by incurring  debt or through gains arising from the sale of assets (financial or non-financial,) or by running down savings which have been accumulated in the past. Nations aggregate this data and report it on a regular basis.

Household saving rates can be measured on either a net or a gross basis. The net saving rate takes into consideration depreciation, and is the figure most commonly used. The figures presented here are primarily net saving rates, with indications where gross saving rates are used because net saving figures were unavailable.

The use of two different measures makes comparisons of saving rates across countries difficult. Further complicating the matter is that countries have various social security and pension models, different tax systems, all of which have an impact on disposable income. In addition, the age of a country’s population, the availability and ease of credit, the overall wealth, and cultural and social factors all affect saving rates - and contribute to the difficulties in making one-to-one comparisons between countries. A more interesting way to look at Household Saving rates is to see their historic evolution, year after year for the same country. 

Long-term economic growth requires capital investment – in infrastructure, education and technology, for example, as well as in factories, business expansion, and so forth – and the main domestic source of funds for capital investment is household savings. Consistently high saving rates over time in a country can translate into funds being available for growth.

In addition, higher levels of household savings allow a larger portion of a country’s overall debt to be financed internally. Analysts consider this to be more sustainable option than high debt levels primarily financed by external (foreign) creditors. Countries such as the US and the UK, which have somewhat lower debt levels, also have lower household saving rates. In the past, high-levels of household savings have traditionally financed Japan’s large debt burden, but the country has seen a significant decline in saving rates over the past decade.

On the other hand, domestic consumption (money that could otherwise be put into savings) adds to GDP growth, which is an important factor in an economic recovery. In the wake of the financial crisis, there is some risk that the paying down of excess debt via increased savings could be a drag on consumption and banking lending in the future, with a dampening effect on economic recovery. Thus rapidly increased saving rates and lower domestic consumption could result in a larger share of future GDP growth needing to come from business investment, net exports and government spending. Italy, which used to have high saving rates, has recently seen a sharp decline in savings as the economic recession hit the country for several years in a row.