Saving Cash: Is it an Asian tradition?

[MarshalStealth]

I presume cash is a favorite but quiet subject of various YW members.

Based on my personal experience, the majority of Asians that I have met are proficient savers.
At the same time, I have also met some Asians that are "closet" gamblers.

May 10, 2009
Shift to Saving May Be Downturn’s Lasting Impact
By CATHERINE RAMPELL

The economic downturn is forcing a return to a culture of thrift that many economists say could last well beyond the inevitable recovery.

This is not because Americans have suddenly become more financially virtuous or have learned the error of their free-spending ways. Instead, these experts say, Americans may have no choice but to continue pinching pennies.

This shift back to thrift may seem to be a healthy change for a consumer class known for spending more than it earns, but there is a downside: American businesses have become so dependent on consumer spending that any pullback sends ripples through the economy.

Fearful of job losses and anxious over housing and stock declines, Americans are squirreling away more of their paychecks than they were before the recession. In the last year, the savings rate — the percentage of after-tax income that people do not spend — has risen to above 4 percent, from virtually zero.

This happens in nearly every recession, and the effect is usually fleeting. Once the economy recovers, Americans revert to more spending and less saving. Over the last 30 years, the savings rate has fluctuated from over 14 percent in the 1970s to negative 2.7 percent in 2005, meaning Americans were spending more than they made.

This time is expected to be different, because the forces that enabled and even egged on consumers to save less and spend more — easy credit and skyrocketing asset values — could be permanently altered by the financial crisis that spun the economy into recession.

“I expect that the savings rate will end up at the end of this recession higher than it was going into it,” said Jonathan A. Parker, a finance professor at the Kellogg School of Management at Northwestern University. “It’s hard to see how it wouldn’t.”

Sustained increases in household saving would cause a difficult period of restructuring for the American economy, which has become increasingly driven by consumer spending. Such spending makes up about 70 percent of the nation’s gross domestic product.

Add the decline in consumer spending to the planned expiration of government stimulus spending, and a painful readjustment in demand for goods and services could occur, economists say. The effect would be felt here and abroad, as many developing economies also depend on America’s big-spending ways.

“If Americans cut back, as they almost have to do, what will replace that source of demand?” asked William G. Gale, director of the economic studies program at the Brookings Institution, a liberal-centrist policy research group.

“The easy answer is the Chinese consumer,” he said, but unlike their more prodigal American counterparts, the Chinese save about a quarter of what they earn. “We may cut back faster than they expand into that space, so there might be a lull.”

Why might the higher savings rate outlast the recession?

Social critics like David Blankenhorn, president of the Institute for American Values, hope that introspection about America’s “culture of consumption” will awaken Americans to the virtues of thrift, just as the Great Depression reset American financial values for a generation.

But many economists believe consumers will change their habits for more pragmatic reasons.

Consumers have lost a huge chunk of their net worth, in the housing bust and the stock market, and to resuscitate their retirement accounts or children’s college funds they will have to channel more of their paychecks toward saving — unless those asset markets soar again.

Forms of easy credit that were once prevalent, like mortgages with no down payments, also may not return, either because the government regulates them out of existence or because banks dare not venture back into such risky lending. That means if Americans want to buy a house, they will have to save more and borrow less.

Whether for reasons moral or otherwise, consumers are already thinking a bit differently about their long-term budgets. A recent Pew Research Center survey found that many more Americans had begun regarding products like microwave ovens as luxuries rather than necessities.

Such attitudes suggest that retailers will have to change their marketing strategies, said J. Walker Smith, executive vice chairman of the Futures Company, a marketing and research consultancy.

“People are realizing they can’t accumulate everything they want anymore, and they’ll have to prioritize more,” he said. “That may be hard for a lot of brands — figuring out not only how to get considered by consumers, but put at the top of their list.”

Consumers planning big purchases are also anticipating that their borrowing options will remain limited.

Last year, Aryn Kennedy and her husband, Brian Ewing, who live in Los Angeles, spent “every dollar” they earned on debt repayment and living expenses. When local housing prices began to fall, Mr. Ewing toyed with the idea of a low-down-payment mortgage.

“By the time we really started looking at buying, I knew from reading blogs that most loans like that were not really available anymore, since lenders didn’t want to take risks,” said Ms. Kennedy, who said she was suspicious of such offers anyhow.

Since then, through “windfalls” like a salary increase for Mr. Ewing, and by cutting expenses for clothing, entertainment and other items, Ms. Kennedy says the couple has begun saving about 25 percent of their take-home pay in anticipation of making a traditional down payment of 20 percent on a house.

Even after they buy, Ms. Kennedy said, the couple plans to keep saving 25 percent of their pay. A recent Gallup poll found that most Americans who have recently increased their savings believe their budget adjustments represent a “new, normal pattern for years ahead.”

Despite the immediate jolt to the economy, more personal saving would be a positive step in the long run, analysts say. More saving leads to more investment, which promotes economic growth, which leads to better living standards.

At the family level, social critics, economists and even many consumers seem to agree that a forced financial conservatism may be for the better.

Kenny Tran of Santa Ana, Calif., for example, said he had been nervous about saving enough to buy his first house — he and his fiancé have been setting aside about $800 a month for the last year and a half — but he has no regrets about not buying a home when credit was looser and saving was less of a priority.

“A couple years ago it would have been easier for us to get a loan,” despite the fact that the couple’s combined income was lower, Mr. Tran said. “But if we would have gotten a loan, and a house, a couple years ago, we’d probably have ended up in foreclosure now.”

Copyright 2009 The New York Times Company
http://www.nytimes.com/2009/05/10/business/economy/10saving.html

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[AngryABCGirl]

I dunno if it's a tradition as much as a practical practice that's emerged from more recent generations of surviving through social turmoil and warfare compared to the average American.

[MarshalStealth]

Originally Posted by AngryABCGirl

I dunno if it's a tradition as much as a practical practice that's emerged from more recent generations of surviving through social turmoil and warfare compared to the average American.

Good view.

Paradoxically, I have met a few Asian-Am trust fund babies who barely save and work. As long as they are getting cash from their parents and grand parents monthly, life is good.

[snailpoo]

It's because of the rice growing skills.

[mrcfo]

Originally Posted by AngryABCGirl

I dunno if it's a tradition as much as a practical practice that's emerged from more recent generations of surviving through social turmoil and warfare compared to the average American.

In Asia, people save up for a rainy day due to a shitty or even non existant social welfare system. Saving is therefor a necessity that has somewhat been passed onto generations. That, plus fortunes change very quickly in Asia....you can become poor overnight.

Yeah, there are many Asians who are closet gamblers and pretty much gamble away their savings.

Just pray you dont have some kinda sickness/cancer....in Asia, it can cost the roof.

[MarshalStealth]

Originally Posted by mrcfo

Yeah, there are many Asians who are closet gamblers and pretty much gamble away their savings.

Some of them have no idea of the probabilities of succeeding on certain game situations. They do not realize the tangible rule of "The house always wins on long run."

[Arex]

^ I'm always amused when I pass by a baccarat table and I see those guys with their filled in play cards which apparently reveal some sort of pattern for victory.

[MarshalStealth]

Almost every gambler that I have ever met, performs some type of unique ritual before the beginning of the game or a post victory ceremony.

Johnny Chan, former World Series Poker Champion
Chan is known for keeping a "lucky" orange in front of him on the table, and after the second consecutive WSOP title other players began bringing fruit to the table in hopes of increasing their luck. Chan says he only had an orange with him because of the pleasant scent, as smoking, which was allowed in many tournaments then, bothered him. Chan was once a smoker, but now he neither smokes nor drinks alcohol.
http://en.wikipedia.org/wiki/Johnny_Chan_(poker_player)

[MarshalStealth]

Originally Posted by Arex

^ I'm always amused when I pass by a baccarat table and I see those guys with their filled in play cards which apparently reveal some sort of pattern for victory.

I am wondering what happens when the pattern does not appear!?

They should read Taleb's book "Fooled by Randomness"

[Broomer]

No, I think it's generational. Big believer that our forebears were better savers then current generation. Not to put too fine a point on it, the number of WRXs I see pretty much speaks for itself.

It's also dependent on your socio-economic background. What you grew up with, were taught and more importantly you're own life experiences.

So all up, no. It's a generational thing. It's about upbringing.

Ka

[contra_diction]

I'm a saver and a gambler, though I'm hardly proficient at either.
What I'm not saving, I'm gambling.

[MarshalStealth]

Originally Posted by Broomer

No, I think it's generational. Big believer that our forebears were better savers then current generation. Not to put too fine a point on it, the number of WRXs I see pretty much speaks for itself.

It's also dependent on your socio-economic background. What you grew up with, were taught and more importantly you're own life experiences.

So all up, no. It's a generational thing. It's about upbringing.

Ka

At this moment, what is your gameplan?

[Broomer]

Originally Posted by CARDINAL009

At this moment, what is your gameplan?

Good question. I used to be a big believer in planning, to quote a great teacher: "if you don't plan, you plan to fail". Problem with me is that I over do it. These days, I plan but I've also learnt to roll with the punches.

My current plans? An old rule of economics: during hard times, spend. During the good times, save. I'm currently working 1.5 jobs, spending when I need to. The rest I save. I'm also dabbling in a couple of side projects as additional income sources: tutoring, etc.

In about three months time, I would review my position and see where I am and what I need to do to reachs my goals.

When times are better, and if I has a bit of savings, then I'll invest that money.

In terms of spending, these days, I review what I consider to be a need or a want. Things that were needs are now wants. Most wants are now luxary.

Ka

[MarshalStealth]

Originally Posted by contra_diction

I'm a saver and a gambler, though I'm hardly proficient at either. What I'm not saving, I'm gambling.

Sooner or later, one has to make a decision.

q: What games do you play?

[MarshalStealth]

Originally Posted by Broomer

Good question. I used to be a big believer in planning, to quote a great teacher: "if you don't plan, you plan to fail". Problem with me is that I over do it. These days, I plan but I've also learnt to roll with the punches.
Ka

Failure to plan is to plan for failure