Japanese Savings Plan

It has always fascinated me how cultural differences impact the way that we view finances. Take Japan for example, where in 2005 the average Japanese household savings rate was 25.5%. The average Amercian household savings rate was -0.5% in the same year. That’s negative 0.5% as in we borrowed or dipped into savings to spend 0.5% more than we made that year on average. In that same year, the two most expensive cities to live in were Tokyo and Osaka so it is difficult to attribute this radical difference to the cost of living.

Part of this difference appears to be the result of a tax structure which encourages long term savings, but that alone seems insufficient to explain the vast discrepancy. Most Americans (myself included) have only a limited understanding of the tax code and on average we do a poor job of fully taking advantage of advantageous tax vehicles such as 401Ks and IRAs.

While I’m not there yet, my goal is to match the Japanese model in 2009 by putting > 25% of my income into retirement savings. This is a pretty substantial increase in my overall savings and in 2008 I plan to split the difference between my 2007 savings percentage and my 2009 goal.