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How high should personal savings rates go - an international perspective

April 14, 2011

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Over the past two years, personal savings rates in the U.S. have clawed their way back above 5 percent, after ranging between 1.4 percent and 4.1 percent over the previous ten years. Is this improvement good enough, or should Americans be aiming for even higher savings rates and larger savings accounts?

An international perspective demonstrates that Americans could be reaching even higher savings rates. Furthermore, current conditions suggest they should be making the effort to strive for those higher savings.

Household savings rates around the world

The Organization for Economic Cooperation and Development (OECD) keeps statistics on household savings rates for a number of countries around the world. These household savings rates are a little different from the personal savings rates compiled in the U.S. by the Bureau of Economic Analysis, but they are based on similar principles. To make an apples-to-apples comparison, the figures cited below will all be based on the OECD's household savings rates figures.

Over the ten years from 1999 to 2008, three prominent European countries achieved double-digit average household savings rates:

  • France: 12.12 percent
  • Belgium: 11.86 percent
  • Germany: 10.17 percent

With those countries leading the way, the euro zone overall averaged an 8.93 percent average household savings rate from 1999 to 2008. The average for the U.S. over that same time period? A paltry 2.83 percent.

To be sure, the U.S. hasn't been the only nation with lackluster savings rates. Canada averaged 3.58 percent over the same ten years, and savings rates in Japan and Korea have tailed off recently. Perhaps the worst major economy when it comes to household savings has been the United Kingdom, with a negative savings rate (-1.19 percent) from 1999 to 2008.

Still, this isn't a case where misery loves company. The financial woes of households in England or anywhere else won't make the bills any easier to pay over here. It would be much more constructive to focus on the countries where high savings rates have been achieved, as an example of what is possible.

The current case for higher savings rates

Certainly, examples from some other countries show that higher savings rates are possible. The question is, are they necessary for Americans at this point in time? Several conditions suggest that they are:

  • Retirement is approaching for many Americans. The baby boom generation is getting older, but only the leading edge of it has reached retirement age. For much of this bulge in the population, then, these should be the peak saving years.
  • Savings account interest rates are down. When returns on savings fall, the only remedy is to put more money aside. With interest rates on savings accounts down, bond yields low, and stocks coming off over a decade of sub-par returns, personal savings rates have to pick up the slack.
  • Lost ground must be made up. Low savings rates would be acceptable if Americans were coming off an extended period of above-average saving. They are not, so now is the time to make up for years of over-spending.

Attaining any goal becomes easier if you are sure it is possible. Based on savings rates from a number of other countries, Americans should be convinced that the only thing that can stop them from attaining double-digit savings rates is their own behavior.

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