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One Big Difference Between Chinese and American Households - Debt - Forbes
One Big Difference Between Chinese and American Households - Debt - Forbes
One Big Difference Between Chinese and American Households: Debt - Forbes
MoneyBuilder
W E H ELP Y OU MA KE S EN S E OF Y OUR FIN A N C ES .
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8/27/13
One Big Difference Between Chinese and American Households: Debt - Forbes
69% were homeowners in 2007, with 70% of them carrying some debt on the
property, in the form of a mortgage or a home-equity loan. Some of this is a
result of Chinese employer home purchase plans for employees, in an effort
to provide housing while limiting indebtedness. In the United States,
however, mortgage debt is encouraged through a subsidy in our tax code that,
in fact, provides the greatest subsidy to those with the largest mortgage and,
typically, the highest incomes.
Less than 1% of urban Chinese use consumer loans to purchase consumer
goods, while 47% of all US families have installment loans and 46% carry a
credit card balance. Admittedly, consumer credit is necessary to smooth our
consumption stream shifting income from high periods to periods where it
is relatively low. In fact, a member of the Bank of China confided to me that
increasing the borrowing of the younger Chinese is a goal of the Chinese
government to enable them to not be dependent on the west to support our
growth.
Roughly 12% of the Chinese sample owned a car with only 0.7% of the
population (6% of the automobile purchasers) borrowing money to purchase
a car. In the United States, anywhere from 73% to 91% of new car purchases
involve financing.
The good news is that, in the United States, credit use is decreasing and
savings rates are up. Revolving credit decreased at an annual rate of 12% in
March and non-revolving credit decreased at an annual rate of 7%. In
addition, April of 2010 saw a household savings rate of 3.6%, compared to
3.1% in March, and it has remained over 3% since the fourth quarter of 2008.
In China, however, households save between 25% to 50% of their income.
With respect to the question of why Chinas saving rate is so high, the answers
range from the existence of an excess of males to females, the lack of Social
Security, the lack of government provided medical care, or a culturally bound
ethic in improving the future for their family.
Whatever it is, Westerners should be grateful for Chinese savings, as it is used
to loan money to the United States, thus allowing us to continue down the
road our nation has chosen.
www.forbes.com/sites/moneybuilder/2010/06/24/one-big-difference-between-chinese-and-american-households-debt/print/
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