Question

What do you think about this article? Are you surprised? Are you now considering your own...

What do you think about this article? Are you surprised? Are you now considering your own savings?When it comes to saving, behavior varies widely among nations. Residents of the United States only save 5.8%. But the residents of 10 countries save more than 9% of their disposable incomes. Economists are uncertain why these countries residents save so much more than others. 24/7 Wall St. has analyzed the 10 countries to try to gain insight into the matter. We reviewed personal savings rate statistics for member countries of the Organization of Economic Cooperation and Development. This information was then compared to the individual tax rate, unemployment rate, and actual disposable income, along with the debt and total deficit, for each country. One factor that could affect the saving rate is a country's tax rate. The higher the government's deductions, the fewer money residents have to spend. Therefore, a significant savings rate in countries with a high tax rate would cause people to have little or no discretionary income. This is indeed true in the case of Portugal and Spain, which have among the lowest tax rates, standing below 20%, and whose residents save among the most. But its not always the case. Belgium, for example, has the highest tax rate among the OECD nations, yet its residents still save more than most other countries. Another reason savings rates vary from country to country may have to do with the fixed cost of living. Americans pay almost $4 a gallon for gas. In some countries, gasoline costs twice that much. People who need to drive a great deal in nations with high energy costs have less to save. Read: The Worst Stock Market Collapses Since the Great Depression Opens a New Window. The reasons that people save or don't save could go on and on. 24/7 Wall St. sought to identify relationships between income and the ability to save. While one might think that high income makes saving more likely; this is not the case. It may be that where people make the most money, the costs of goods and services are proportionately high. It also appears that there is no ready relationship between savings rate and other major economic factors in the countries where people save the most. See for yourselves and let us know what you think.

Homework Answers

Answer #1

Household saving rates can be very different amongst different countries, as they depend on a variety 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. Saving rates in countries also depend on the current economic/ political situation in the economy. In some countries such as the United Kingdom and the United States, saving rates fell to record lows after 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. Hence, the difference in saving rates cannot really be attributed to specific fixed factors.

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