Why average Japanese families have more cash savings than people in other countries

By on August 11, 2016

IMG_20160805_135134 Last year, the Japanese households’ average savings reached ¥18M and is steadily increasing every year. The habit of saving money is deeply ingrained in the Japanese culture because not having enough money can make one run  into trouble or force one into personal bankruptcy.

Japanese families are generally money savvy because of cultural mindsets.

Delayed gratification

Most children in Japan get their first training in personal finance at a young age from their parents. They are taught that the more money they save, the higher the quality of personal items they can buy in the future. It is common for Japanese parents to urge their children to keep their ‘otoshidama‘ (traditional cash gifts received from relatives and friends) in the bank to avoid impulse buying. Most parents instill in their children’s mind that borrowing money from people is frowned upon in Japanese society. So when there’s a chance, high school students get a part-time job to fund a purchase outside of the family budget. Over time,  their money management skills improve. Thus, by the time a man starts his career and raises a family,  he is well prepared to manage his personal finances.

The Japanese love cash

Japan is a cash society where paying for small and large purchases in cash or through debit is the cultural norm.  That’s not to say that the Japanese don’t own credit cards. They do. They just don’t swipe cards as frequent as people in other countries.

The Credit Card Academy, a Japanese website educating people about credit, estimates the average Japanese to have at least 3 locally issued credit cards. That’s about the same number of cards issued to the average American.

54% of credit card holders in  America use card for purchases, 55%  in the U.K. and 58% in Korea. Only a paltry 18% of the average Japanese pay for purchases with their credit card.  Presently, Japan is experiencing a steady decline in credit card use. In fact, membership is down to 84% in 2015  from 88.1% in 2011, according to a February 2016 JCB survey.

Less credit card use, more savings

I digged into the 2014 Public Opinion Survey conducted by Chokin Ginko to see how much the Japanese are saving. Let’s look at the details.

The table below shows a consistent saving pattern regardless of  age and status.  It also clearly shows that the older they get, the more money they save.  The middle column is the average amount of their cash savings and on the right is their average net worth.  (Family is based on a household with 2 or more working).Amount of savings

In the U.K., 4 in 10 adults have less than £500 (¥65,836)  in savings.  The average American charges $4,236 to her credit card and saves just 4% of her earnings.

The psychology behind using credit cards

Although paying in cash is conventional wisdom, some people prefer plastic cards for purchases. Psychologists and behavioral economists explain why this can easily put you in debt, if not careful.

1) Coupled pain with cash purchase
When you pay in cash for a nice dinner at a restaurant with your wife for example, the act of enjoying your food and paying for it is coupled. The pain when you pay is felt at  about the same time as the pleasure from a good dinner.

When  you pay with a credit card, your pain is distanced from the payment itself making you focus just on the pleasure of dining.

2) Credit card purchase takes your mind away from the cost
A study by the Journal of Consumer Research reveals that using credit cards take your attention away from the cost and more on the benefits of items or services purchased.

 

 

 

 

About Ted Tanaka