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A reason why Americans don't save
America may be first in the world in many things, but saving money isnt one of them. - photo by Mercedes White
America may be first in the world in many things, but saving money isnt one of them.

The average American household saves less than 5 percent of its yearly income, according to a March 2015 study from Bankrate Inc. By contrast, personal savings rates in countries varying from economic powerhouses China and Germany to weaker economies like Poland and Hungary are all at least double the American rate, according to data from the Organization for Economic Cooperation and Development (OECD), a coalition of 34 advanced countries dedicated to the principles of democracy and market economy.

And this isn't a recent phenomenon. Between 1959 and 2014, the average household in America saved 6.8 percent of its income, according to data from the United States Bureau of Economic Analysis.

So why are Americans lagging behind?

Economists have numerous theories. Some attribute low savings rates to the existence of a social safety net (i.e. Social Security), low-interest rates and even religion. But these theories don't always hold up.

Sweden, for example, has a large social safety net, but Swedes double what Americans save. Iceland has one of the highest interest rates in Europe, 18 percent, which conventional wisdom says should promote savings, but Icelanders have an even lower savings rate than Americans.

So what gives? Language, according to Keith Chen, professor at Yale University School of Management. Chen has proposed that the language specifically how language forces people to deal with time determines how much they save. While the explanation might sound outlandish, Chen has put forward a compelling body of work in support of his hypothesis.

Speaking of the future

Different languages have different ways of referring to time. In English, when we refer to something in the future we set it apart with the word "will." For example, we say "it will rain tomorrow" or "I will need money for retirement." In Chinese, by contrast, one might say "it rains tomorrow" or "I need money for retirement." That is, references to the future are treated the same as references to the present.

The subtle differences in how people talk about time impact how they think about time, and as a consequence, how they behave, according to Chen. Language provides these subtle nudges that cause us to think more (or less) about the future every time we speak, said Chen. That is, if your language influences you to think the future is something distant and distinct from the present, you may be less likely to save money.

Time and savings

Just looking at OECD data, Chen found support for his hypothesis. Countries where languages that require strict time differentiation between the present and the future had lower savings rates than countries where futureless languages are spoken. But Chen wanted to take his theory a step further to see if there wasnt something else explaining this pattern. To do this he gathered data from countries around the world where native populations speak future-oriented and futureless languages.

Controlling for employment status, family size, income, education, marital status and religion, Chen found that individuals who speak a language with strong future references (such as English) were 30 percent less likely to have saved in the previous year compared to their future-oriented language counterparts. By comparison, this was roughly equal to the impact of being unemployed. That is, the language a person speaks can have as big an impact on savings behavior as whether or not they have a job. He found that people who speak futureless languages retire with about 25 percent more in savings than their future-oriented language speaking peers.

Not surprisingly, Chen also found connections to future-oriented health behaviors. Speakers of futureless languages are less likely to smoke, less likely to be obese and more likely to practice safe sex.

Chen concedes that the correlation between language and savings rate does not prove that speaking a certain language causes different savings behavior. There may be underlying cultural or genetic factors related to how people think of the future as well. But Chens study does provide some reason to believe that the correlation is causal. For example, cultural factors related to how people think about the future also show a tendency to impact savings rates, but the impact is independent of the language impact.

Is language destiny?

So is the take-home message that English speakers are destined for low savings rates and there is nothing we can do about it?

No! says Chen. My ultimate goal with a lot of this research is to really uncover the subtle things which nudge us to thinking about problems in one way or the other. Chen said being aware of our linguistic tendency to discount the future, people who speak English may need to look for additional strategies to help them save.

Chen cited a study from the University of Pennsylvania where researchers had employees decide how much they wanted to save. Half of the employees were presented recent pictures of themselves on a savings form, and the other half were shown picutres that were digitally altered to make them seem older. What [they] found is that people who had to stare at their future selves saved a lot more than people who were staring at their current selves while making this decision, said Chen. Becoming more aware and understanding exactly why it is that we allow kind of subtle nudges of our language to affect our decision-making, in the end, will result in tools that'll help us kind of be better stewards of our own futures."
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