To save or not to save - that is the question

Question to Warren Buffet at a conference: Americans do not save. Asians save 40% of their income. How can we correct this long term problem?

Warren Buffet’s answer:

  1. The savings rate in US has fallen significantly and may even be negative.
  2. However, the value of the country, in real terms, does increase quite significantly decade to decade.
  3. I am not sure how it happens without saving but this country as a whole is worth considerably more than it was 10 or 20 or 30 or 40 years ago in real terms. So something good has happened.
  4. But the propensity to save seems almost innate in at least the great majority of cases.
  5. If you are on Berkshire stock, you are automaticaly saving because we retain earnings and your indirect interest in those retained earnings is a form of saving.
  6. So you can spend every dollar of your income that comes in the other way and if you own Berkshire, you are net saving - which is a practise I have been following for 43 years.
  7. I don’t know that the savings rate is based on the calculations made on consumption and imports and so on.
  8. We are importing 700 billion more of goods and services than we are exporting and that means that somebody else is doing our savings for us basically as we export ownership and claims against America. I think that is going to have consequences over time. But we are so rich that it may not be really apparent.
  9. I think the average American standard of living is going to improve in real terms, although I think it may be very, very, very disproportionate, the extent to which the particularly super rich benefit compared to those in the middle class.
  10. But net, I think the country will be - even with our present policies - the net - in net real terms, the value on a per capita basis of the country, will increase from decade to decade.
  11. But nothing like it will in places like China or Korea - percentage wise - where the savings rate is very high.
  12. This country may not save very much because it may not need to save very much.
  13. We have $47,000 of GDP per capita. It may not be distributed very well. But we are one very, very, very rich country. A very rich country may not need to save as much as a country that is trying to reach its potential.

He seems to be suggesting that investing is a better option than saving.

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