Here’s a nice little reminder of why high savings rates aren’t always a sign of strength a country, pulled from the intro of a research paper regarding global imbalances:
High private saving is not necessarily good. It may reflect a lack of social insurance, which forces people to engage in high precautionary saving. Or it may reflect poor firm governance, which allows firms to retain and reinvest most of their earnings.
Food for thought for the next time we hear about how much better savings rates are in certain countries. High savings rates can be good obviously, but sometimes they are simply a sign that a country suffers from an extremely weak social safety net and a lack of confidence in a nation’s financial system.
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