Savings Rates: Hungarians, 9.0%; Americans, 4.9%. Ouch.

Middle-Class Saving vs. Savings

Gary North – April 16, 2016

America does not save as much as European nations do, even welfare states.

The journalists who write these articles, year after year, never mention Pareto’s law.

Here is reality: it doesn’t matter what the bottom 80% own. It matters what the top 20% own.

The bottom 80% have only 20% of the capital. They are not good investors. They are marginal.

It is not democratic to say this. It is not politically correct to say this. It implies that the middle class are free riders. But this is what they are. They ride on the wealth created by the thrift and investing skills of the top 20%.

Now read the latest hand-wringing exercise on the lack of thrift of the masses.

Why Americans are some of the world’s worst savers

tBy Maria LaMagna

Americans are some of the worst savers in the developed world.

Americans don’t save much compared to several other countries, according to the monthly Global Finance Magazine, but those in the U.S. aren’t the worst savers the magazine tracked. Global Finance compared 25 different countries that are members of the Organisation for Economic Co-operation and Development, or OECD, an association that formed after World War II. (But because the magazine wanted to keep the comparison succinct and limited to 25 countries, not all the OECD countries are included.)

To make the graphic, the magazine compared the countries’ GDP per capita, also taking into account their purchasing power parity, the rate a currency would have to be converted into another to buy the same amount of goods and services in each country. The magazine found that the countries with the highest savings rates weren’t necessarily the countries with the highest GDPs.

Notably, the U.S., which has a GDP of $56,300 per capita, has a household savings rate of just 4.9%. On the other hand, Hungary, which has a GDP of $26,000 has a savings rate of 9.0%. (Household savings rate was defined as the difference between household disposable income, from wages and net property income, and consumption.)

Some differences the map shows are cultural. Several countries on the list boast high savings rates even though they also have many government-provided services, including France, Germany and Sweden. What makes the United States different isn’t a lack of government services but other factors that discourage ordinary people from saving small amounts, said Sheldon Garon, a history professor at Princeton and the author of “Beyond Our Means: Why America Spends While the World Saves.”

For example, in many European countries it is easier to open a savings and checking account (often possible at post offices) and rare to carry a credit-card balance, whereas in the U.S. banks charge overdraft fees and minimum balance fees. Also in the U.S., a consumer-driven economy has led to easy transactions and delivery services.

Plus, it’s easy to make purchases on credit. “The moment temptation strikes you, you can satisfy it by clicking or conveniently getting the things that you need,” said Stuart Vyse, a psychologist and the author of “Going Broke: Why Americans Can’t Hold On To Their Money.” “We’ve streamlined the consumption process.”

What’s more, some consumers even see spending as their patriotic duty, he said, noting that after 9/11 former president George W. Bush encouraged Americans to “go shopping more.”

Blah, blah, blah.

Yada, yada, yada.

It doesn’t matter whether or not regular people have bank accounts. What matters is what the top 20% do with their money. This is true in every nation.


Culturally, it matters what people believe about the future. It matters that they know how to move up economically.

It matters for the tiny fraction of people who will over into the top 20%. A free society is marked by the replacement of elites. The sons and grandsons of the rich lose their inheritances. People move up from the top ranks of the bottom 80%. This is positive.

So, in this sense, the savings habits of the bottom 80% are important, but not because of what assets they contribute to capital formation. What matters is the ethos of the people in the bottom 80%. The habits of the middle 60% shape individuals in this group. These individuals make the difference after they move into the top 20%.

The middle 60% — middle class and lower middle class — are important in the way that baseball’s farm clubs are important to the big leagues. They provide the training. They provide the arena of competition. They identify the future winners at the top.

The non-human capital provided by the bottom 80% is marginal. But the human capital that is produced in the bottom 80% is important.

We hear about savings of the masses as if the savings were important. Saving as a way of life is important, but the actual savings of the bottom 79% are not.

Have you ever read a hierarchical defense of national thrift? I doubt it.

People do not understand Pareto’s law. If they did, they would make more relevant judgments.

I want to find out about the wealth invested in closely held businesses. That is where wealth is created. That is where jobs are created.

It is easier to start a business in the USA than in any other nation.

Since 2007, the rate of new business formation has fallen. This is serious. The rate of bank account formation is marginal. Dane Stangler has it right:

Contrary to expectations, new business creation did not rebound sharply from the historic nadir reached in 2010. In 2012, 410,001 new employer firms were created, which represented only a slight increase from the prior year. Those new firms accounted for 8.1 percent of all businesses in the United States, again only a slight increase from the depths of 2010 and 2011.

He offers this chart.

Here is the threat to American economic growth. Bank account formation is only marginally relevant.

Above article originally appeared at Gary North’s Specific Answers: Wealth-Building Strategies, Plus Q & A Forums.  Reprinted here by expressed written permission from Dr. Gary North.




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