Saving in the time of a pandemic

Savings are an important resource and safety net for both individuals and governments to help them cope with the negative effects of downturns and disasters, such as the ongoing COVID-19 pandemic which is due to complete a year in January 2021.

Japan is a country that encourages its people to begin saving from childhood in the face of a plethora of temptations to spend on everything from electronics, entertainment and other goods and services. Shunning any extravagant spending and excessive consumption, the Japanese have learnt to save for a rainy day, as the idiom goes.

The pandemic has reinforced this important premise — that it is imperative to set aside funds in the good times to ride out the rough times. Today, many people have lost part of their wealth and business livelihoods due to lockdowns and institutional closures triggered by the pandemic.

For my PhD thesis two years ago, I studied the Japanese model of saving — a culture that begins at a young age. Deposits accrued from savings help with economic development, internal investment, and even lending to other countries.

This has made Japan one of the largest creditor countries buoyed by huge savings generated by individuals, housewives and other groups.

An Indian economist recently told me that the Japanese save a lot by being thrifty in their spending. The country enjoys a huge trade surplus averaging more than $100 billion annually as its exports more than it imports.

This is unlike the Americans who spend a lot of money and also import a lot of imports, leaving them saddled with a trade deficit of over $400 billion annually. They consequently have to borrow from countries such as Japan, China, Korea and others. This debt is transformed into bonds, foreign currencies and other financial instruments.

This dynamic is however changing as countries engage in trade wars, trade protection barriers, and hefty taxes on imports.

This approach has been adopted by the current US administration under President Trump who is opposed to anything that is non-American.

In recent years, the US has borrowed around $5 trillion to spend on institutions that are characterised by large consumption. Thus, it can be said that countries such as Japan, China and others are investing in the US by lending these amounts.

This trend will persist as long as there are people who save and others spend generously. But the pandemic is a learning experience for countries, notably the Americans, on the importance of thrift in order to secure the welfare and well-being of their peoples during adverse times.