In general, people save for the following reasons:
- Emergency/ unforeseen expenditures (especially unexpected medical expenses)
- Down payment on a house (although often a 5% down payment is enough)
- Down payment on a car (although less and less is required these days)
- Retirement Income
- Education for yourself or your children
The savings rates as a percentage of disposable income vary from country to country (in some places, quite significantly). The dominant influences on these differing savings rates are explained below:
- The social safety net varies significantly from country to country. Is there a national healthcare system (e.g. Canada)? Are there generous retirement pension plans (e.g. Finland)?
- Certain countries have a cultural disposition to savings (e.g., France and Germany). This is likely due to the trauma of World War II.
- A national tragedy or recent disaster can cause an increase in the savings rate. For example, China was occupied by the Japanese in the 1920’s and again in World War II. After World War II, a civil war erupted between Mao Tse Tung and Chang Kai Sheck with Mao winning and turning China Communist in 1948. After the collectivization of all farms, Mao led the Great March, an event that led to the deaths of thirty million people.
Interestingly, Megan McArdle states that some of the reasons people used to save, such as taking a vacation or for holiday gifts are now just put on our credit cards (2018). This means we are buying what we want without having the money for it, which means we have to pay the credit card bill every month. This increases our monthly expenses and conversely decreases our monthly savings.