doppelganger
Dec 19th, 2008, 12:10 AM
SOURCE: http://www.economist.com/blogs/freeexchange/2008/12/are_the_chinese_nervous_or_jus.cfm
Most people save to insure themselves against income and life shocks, for their children’s education, and for their retirement. How much you actually save for these uses depends on your income, level of risk aversion, and how risky you perceive your environment to be. Were the Chinese less risk averse than Americans, they might still save more based on perceptions of the relative likelihood of income and other financial shocks. The Great Moderation in America produced a long period of low consumption volatility. Americans may have come to believe that such placidity would persist in the future, leading even the most risk averse to reduce saving.
Given this, the most effective fiscal policy for China might be the construction of a better welfare state. But would that cause the Chinese to spend like Americans? An individual’s level of risk aversion should stay relatively constant, but how that person calibrates risk may change. The question is, are the Chinese more risk averse or do they simply face greater uncertainty? I suspect some combination of the two. According to the 2004 Survey of Consumer Finances, Asian Americans (actually this group also includes Native Americans, but they make up a much smaller share of the population) have the highest rates of 401(k) participation. When such programmes are offered to people of Asian descent, 88% opt to join. Compare this to white Americans, who have similar incomes, but only participate 79% of the time.
Arguably, Asian and white Americans face the same economy-wide risks. The evidence then suggests that Asian Americans have greater innate levels of risk aversion. One other possibility—the survey cited above does not indicate how long a particular family has lived in America. The Asian-American families in the survey could then be calibrating risk based on perceptions ingrained by immigrant relatives or by surrounding immigrant communities.
Most people save to insure themselves against income and life shocks, for their children’s education, and for their retirement. How much you actually save for these uses depends on your income, level of risk aversion, and how risky you perceive your environment to be. Were the Chinese less risk averse than Americans, they might still save more based on perceptions of the relative likelihood of income and other financial shocks. The Great Moderation in America produced a long period of low consumption volatility. Americans may have come to believe that such placidity would persist in the future, leading even the most risk averse to reduce saving.
Given this, the most effective fiscal policy for China might be the construction of a better welfare state. But would that cause the Chinese to spend like Americans? An individual’s level of risk aversion should stay relatively constant, but how that person calibrates risk may change. The question is, are the Chinese more risk averse or do they simply face greater uncertainty? I suspect some combination of the two. According to the 2004 Survey of Consumer Finances, Asian Americans (actually this group also includes Native Americans, but they make up a much smaller share of the population) have the highest rates of 401(k) participation. When such programmes are offered to people of Asian descent, 88% opt to join. Compare this to white Americans, who have similar incomes, but only participate 79% of the time.
Arguably, Asian and white Americans face the same economy-wide risks. The evidence then suggests that Asian Americans have greater innate levels of risk aversion. One other possibility—the survey cited above does not indicate how long a particular family has lived in America. The Asian-American families in the survey could then be calibrating risk based on perceptions ingrained by immigrant relatives or by surrounding immigrant communities.