Comparisons and Reflections on the Psychology of Savings (symposium article)

At approximately ten percent of the gross domestic product (GDP), the U.S. savings rate is the lowest of that of all major countries. By way of contrast, China has the highest savings rate of all major industrial countries at fifty percent of GDP. Below, with the intention of provoking debate, we will discuss facts and some psychological aspects of comparative savings, drawing on the works of Phillips,

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Shiller, Goffman, Lasch, and Stanley and Danko. Our conclusions do not bode well for the future of America.

The best-selling book, American Theocracy (2006) by Kevin Phillips, takes a hard look at America’s spending habits and concludes that overspending in the U.S. is serious enough to lead to national decline. The average American family carries an average of thirteen credit and debit cards. By 2001, despite unprecedented levels of earnings, half of all American households had nearly no savings and one third of American households lived paycheck to paycheck. There were nearly five million personal bankruptcy filings during George W. Bush’s first term in office, one every fifteen seconds. Debt, like global warming, is the proverbial elephant in the living room, a huge problem that people manage to ignore.

An economist who has not ignored the issue of our debt and overspending crisis is Robert J. Shiller, Stanley B. Resor Professor of Economics at Yale University, who has written “Thrifty China, Spendthrift America” (August 2006) for Project Syndicate. He has looked at China to understand how the Chinese manage to save considerably more than we do. The sizable savings rate is a major reason that China’s annual economic growth rate is six percent higher than that of the U.S. When people save at the Chinese rate, they have the ability to invest in capital,

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which pushes their economy even further.

Shiller suggests that the Chinese ability to save is multi-determined and lists the following four reasons. One, the Chinese save because they have lost confidence in government-provided health care, retirement benefits, and education, and they have also lost job security. Two, the Chinese are not yet attuned to a higher standard of living and thus find it easier to save more of what they make. Three, the one-child-per-family policy helps with savings as the Chinese invest in capital rather than children.

Professor Shiller then enters the realm of the psychological for his fourth reason by saying there are “deeper factors” underlying the savings issue. He states that in America the shame of being seen as poor is unbearable. Americans have no cultural resources to bolster self-esteem: as a nation we resort to spending money we do not have in order to save face and avoid embarrassment. This turns out to be an expensive habit. It is reminiscent of Erving Coffman’s emphasis on how important saving face is to Americans (The Presentation of Self in Everyday Life, 1959). In contrast, the Chinese are still recovering from the Cultural Revolution arid feel there is no shame in being poor. Shiller suggests that the Chinese take pride in their struggle and see hard work and strife as something akin to heroism.

We believe that Shiller, despite having no training in psychoanalysis, has touched on a crucial point underlying America’s compulsion to overspend. His use of words like “shame” and “loss of self-esteem” describe narcissism, a condition that has been the focus of concern in psychoanalytic circles for the last forty years. Christopher Lasch’s 1979 award-winning book, The Culture of Narcissism, outlined the causes and the growing problems of narcissism in America.

Narcissists can be described as having a depleted self-image which needs constant refueling. Lasch and many others have suggested that overexposure to media images and America’s sense of freedom have generated hyper-individuality and hyper competitiveness. Our cultural dynamic urges consumption to present an image of success.

The Chinese are not nearly so concerned with self-pride, at least not yet. Shiller predicts that exposure to the market economy will eventually produce the same tendency toward conspicuous consumption but not until their younger generation comes of age. The adult generation in China still has faith in government with almost ninety-seven percent professing confidence in the government. Contrast this with only thirty-seven percent of Americans expressing faith in our government. This is a telling difference and reflects the major difference in the psychology of the two nations. Americans need to define themselves as independent produces great creativity in America creativity seen in science, medicine, entertainment, the military, sports, and finance.

However, there is a dark side to our narcissism since it also presents us with the need to display our grandiosity. Big homes, big cars, big vacations, expensive clothes, jewelry, and fancy restaurants are what we use to display our grandiosity. Conspicuous consumption costs money and the use of credit only makes things worse.

The Millionaire Next Door by Thomas Stanley and William Danko, a best seller in 2002, describes the personality and spending habits of those who manage to become millionaires in America. Contrary to what one might predict, they found that the truly rich looked just like the guy next door. They had simple taste, small homes, old cars and were best described as frugal, self-disciplined, and usually self-employed. They also had over a million dollars in the bank. Unsurprisingly, the way to get rich was to save. However, Stanley and Danko found that the vast majority of Americans loved to spend and therefore did not accumulate much wealth.

At this point the Chinese do not appear to be as narcissistic as Americans. They will sacrifice for family or government since they define themselves as family or citizens rather than as individuals. However, Shiller goes on to predict that the Chinese will eventually come around to our way of spending. Americans have been targeted by the combined genius of marketing, media, and financing for fifty years, and the result is a nation of eager consumers. “I shop, therefore I am” is a central tenet in our consumer society. Even though the Chinese may eventually succumb to the same influences as we have, the real issue is not what will happen to the Chinese but what will happen to us if we keep up our way of spending.

Clearly, America overspends and narcissism may be a primary cause of this habit. But it is by no means easy to correct the overspending. In fact, none

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of our national leaders and very few of our intellectuals seem to be addressing this vital question. We agree with the authors cited above that America is in a state of denial about its debt problem. “Keeping up with the Joneses” creates more problems then it solves, but we keep spending nonetheless.

We applaud Dr. Shiller’s insight into our problem of overspending and his use of Chinese culture to show us that it is possible to save. It remains for America to establish a social system that fosters more restraint in spending and more self-pride so that we don’t spend our way into the poor house.

The American style of secularism has produced a nation in serious debt and caught up in a cycle of overwork in order to sustain our compulsive spending habits. The remarkable success of advertising, media, and credit has produced nothing more than an exhausted nation of workaholics who have expensive lifestyles and owe too much, but who have little in the way of savings, security, or self-pride. It reminds us of the man on the treadmill in Alice in Wonderland, complaining that the faster he runs the farther behind he gets. This is the manic and exhausted world of 2007 America.

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