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: Luca Ventura
Project Coordinator: B Pham

As we mark a decade since the global financial crisis, statistics show that household savings ratios started falling steadily across all major economies soon after the worst of the recession was over. Economists were not the least surprised. They call it "wealth effect": once people begin feeling a bit more rich, they start saving a bit less. 

Or a lot less: numbers from the Organization for Economic Cooperation and Development (OECD) reveal how in countries like Spain, New Zealand and Finland growth in households’ spending is exceeding the growth of households’ income and will continue to do so for the foreseeable future. Other nations, Italy in particular, appear on route to possibly cross the same negative threshold.

Caution is needed when comparing household saving rates between nations: institutional differences and data reliability can thwart the international comparability of saving rates. Household saving rates also vary considerably across countries because of institutional, demographic and socio-economic differences. However, certain geographical differences have proven to be persistent over time. 

What are the long-term enduring benefits for those countries where household savings keep steadily high irrespectively of the ever-changing levels of wealth, interest rates and other external factors? For one, these nations can be pointed out as an example of virtue to those with holes in their pockets. OECD data shows that private households consistently saved between 8% and 10% of their disposable income over the last two of decades. Saving is also an essential part of the country’s tax planning strategy, welfare provision and social policies. Good citizens and good states don't live beyond their means. 

In the wake of the European sovereign debt crisis, the implementation of austerity measures in those countries—and specifically Greece—where unsound fiscal policies were considered the Achille's heel of the Eurozone was justified with the unavoidable necessity to reduce spending and increase savings. Germany—unsurprisingly—was a leading advocate of these policies. Eight years after its debt crisis began and after much pain, on August 20, 2018, Greece country officially exited its third economic bailout program with significantly higher capital reserves than originally predicted. Now that Italy, with its soaring debt, is being pegged as the epicenter of the next financial crisis, the suggested remedy remains the same: don't spend more than you earn. 

Individuals can be forgiven if they don't always manage their money well: a new Cornell University study even suggests that we are wired to look for ways to earn money, but not so much for ways to save it. Experience, however, is a powerful teacher: it is unlikely that Greeks will make the same over spending mistakes of the past anytime soon, and even among Americans there have been indications of a shift toward a desire to save more. Reckless spending is certainly less excusable when it comes from governments. All sorts of risks can threaten without much advanced warning the economic stability of a country: oil prices, trade tensions, currency fluctuations. You just never know. 

One thing we know for sure, however, is that the aging of the population in industrialized countries will put a massive strain on their healthcare and retirement systems. Older households will necessarily dissave, and with savings drawn down governments will find increasingly hard to rely on consumption to keep growth going. Without an influx of immigrants or an unlikely change in fertility rates, even high-saving countries may soon head down a similar road to Japan, where the population holds the fortunate distinction of being the most long-lived in the world and the less fortunate one of periodically edging towards negative saving rates. Time, to a greater extent than ever before, tends to last more than money. 

Economic Outlook No. 103 — May 2018

*Values expressed as a percentage

Country
2012
2013
2014
2015
2016
2017
2018
2019
Australia 7.03 7.35 7.76 6.68 4.94 2.98 2.44 2.02
Austria 8.86 7.11 6.82 6.87 7.92 6.36 6.62 6.24
Belgium 5.69 5.14 4.93 4.43 3.69 3.87 4.17 4.17
Canada 4.72 4.80 3.59 4.60 3.36 3.43 3.15 3.41
Czech Republic 5.99 5.62 6.59 6.84 6.02 5.45 4.79 3.88
Denmark 0.12 2.34 -2.90 4.65 5.01 5.60 5.90 5.95
Estonia 5.06 4.39 6.29 7.44 7.27 7.55 7.67 7.61
Finland 0.71 1.52 -0.14 -0.49 -1.43 -1.52 -0.17 -0.22
Germany 9.29 8.95 9.47 9.62 9.69 9.86 9.94 9.95
Hungary 5.24 7.11 8.18 6.27 7.05 7.74 7.16 6.07
Ireland 6.73 5.01 2.81 2.27 2.11 3.99 3.92 3.72
Italy 1.98 3.61 3.85 3.20 3.09 2.37 1.66 1.06
Japan 2.71 0.30 -0.35 0.82 2.56 2.61 2.73 2.32
Korea 3.90 5.60 7.18 9.32 8.74 8.94 8.86 8.87
Latvia -14.52 -15.27 -12.45 -9.89 -7.64 -7.17 -5.55 -4.50
Lithuania -1.96 -1.23 -3.65 -3.88 -4.34 -4.15 -4.00 -3.87
Luxembourg 14.36 14.50 14.61 14.55 14.91 14.25 13.61 13.86
Netherlands 7.17 7.30 7.90 6.51 6.43 6.12 6.14 6.15
New Zealand 0.45 0.09 -1.45 -1.27 -2.79 -3.18 -2.54 -2.05
Norway 7.12 7.42 8.21 10.34 7.07 7.30 7.99 8.29
Poland -1.11 -0.07 -0.36 -0.44 1.67 1.82 2.53 3.59
Slovak Republic 0.75 0.21 1.45 3.23 3.79 3.79 3.82 3.78
Slovenia 2.13 4.79 4.54 4.63 4.94 3.89 3.85 4.37
Spain 2.35 3.84 3.49 2.77 1.75 -0.57 -1.34 -1.42
Sweden 14.40 14.97 16.46 15.06 16.62 15.91 16.58 16.14
Switzerland 17.35 17.53 18.88 17.65 18.79 18.66 18.53 18.18
United States 7.63 5.00 5.67 6.08 4.87 3.38 3.72 4.65
Euro area (16 countries) 6.12 6.16 6.35 6.01 5.84 5.54 5.30 5.19