Personal finance lessons from China

Could social welfare programs be to blame for Americans' tendency to save less and spend more?

Two new studies highlight the different attitudes between the Chinese and Americans toward borrowing and saving.

The Chinese, particularly the young and affluent, are reluctant to spend future money, according to the authors of the 2011 study, "Credit cards in a Chinese cultural context: The young, affluent Chinese as early adopters." China's young adults enjoy having plastic, and many carry more than one card, but they appear to be more aware of the implications of debt and don't like the idea of paying interest.

The study's authors (David B. Stewart, Frauke Mattison Thompson and Steve Worthington) believe these attitudes stem in part from conservative attitudes of previous generations, who may have instilled stories of hardship and how important it is to save money to protect oneself from having to go without.

Americans, on the other hand, freely use credit to supplement their lifestyles. The average credit card balance per debt-carrying household is $15,799. In the United States, there are almost 686 million credit cards in circulation among a population of roughly 312 million -- more than two cards for every man, woman and child. In China, with a population of more than 1.3 billion, there are currently only 199 million credit cards in circulation -- about one card for every six people. Overall household debt in China is the third lowest compared to the rest of the world's countries.

That's not to say that Chinese attitudes will remain entrenched in debt aversion. Reports from 2009 and 2010 suggest that as Chinese banks continue to push credit card usage, defaults and increased revolving debt will become more commonplace.  The market grab has been explained as a way to boost domestic consumption and economic growth.

As for savings rates between the two countries, Chinese households tend to save more than their American counterparts. University of Missouri researchers found that the Chinese have far more motivating factors driving their desire to save more, such as education, retirement and emergency funds.

"In the U.S., unemployment insurance and other welfare programs provide a relatively sound safety net, whereas in China, there are no such social welfare programs," Rui Yao, an author of the study, said in a press release. "As a result, Chinese households must resort to family support and previous savings in the case of emergency," says Yao, who also states that Chinese economic reforms have left no "sound social security system in China."

The largest savings disparity between the two cultures is for education. Fifty-nine percent of urban households in China save for education versus just 19 percent of American households.

It makes me wonder that without the (illusory?) promise of Social Security and other social welfare programs and government loans whether Americans would take quite a different tack on how they spend and save money. Not that I'm advocating getting rid of any of those programs, as I have paid into and expect to receive Social Security when I retire. But if it did not exist, I bet I would have made a bigger effort to save a lot more and would have been a lot more frugal than I have been.