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Japanese vs. Western Financial Principles


Mistress of the Night
Executive Leadership
Global Moderator
Sep 24, 2009
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Recently, I have been having a debate with a few people about Japanese financial ideals vs. their western counterparts. The basic idea is that Japan is a mostly cash based society as where western, developed countries are more increasingly using plastic payment methods. That goes towards both debit and actual revolving credit cards as opposed to handing over cash at each purchase.

Although, in Japan the Edy cash payment system and other similar payment methods are more popular recently, but you won't find a similarly popular debit system that you can find all over America for example.

A large majority of westerners live paycheck to paycheck as where Japanese people in particular usually get paid once per month and use the built in 'bonus' system to save large chunks of cash at one time. So, by the time you are age 30, you would have amassed at least 5 million yen or more in savings alone. Compared to an American at the same age who may have no more than $2,000 USD in the bank at any given time in addition to carrying large debts such as credit cards, car loans and possibly a mortgage. For College educated Americans, you can toss in student loans as well. Here again, comparing to Japanese: they don't have the same student loan systems and most usually pay cash for a car and avoid using revolving credit systems. Mortgages are universal however, with the exception of the interest rates being charged in various countries.

So - which system is better? That depends on the questions you ask!

I'll use myself as an example: When I came to Japan, I had debts like every other average American. After living in Japan for 5 months, I quickly realized how much I was losing almost daily because of either poor spending choices or interest getting eaten by credit cards/loans. I set out and put together a financial plan that paid off *all* of my debts and still allowed me to put away 2 million yen in just over 1 year. It was not easy, but the end result was completely worth the effort.

Today, I follow the Japanese cash system and probably will do so for the rest of my life. The only loans I'll ever take out will be fore a car or a house, which are secured debts that can't balloon into something larger than what it really is. If I don't have the cash for it otherwise, I won't buy it.

Here's where the fun part comes into play! Speaking with family and friends back home, it seems that getting paid once a month to them is just an inconceivable idea! Not only that, but they are so quick to put something on credit instead of paying cash for it.

I know this is an age old argument and yes, the cultures between the east and west are vastly different, but I think we all can learn from each other.

Has living in Japan changed your financial outlook?
long post karen-chan.
my short answer is, the japanese system forced me to save money for which now, im grateful for. it was a strange system to me, after a few years, i can see the benefits.
housing loans here are superior interest rate wise, i became debt free in japan last year...
im happy with that.
Hmm.. I had expected a better response on this thread, oh well.

@Xeryu, glad to hear that you're debt free, that's a great feeling isn't it?
I've saved more money in Japan than I did anywhere else in the world. I can't explain how it's possible since things are technically more expensive here. It's possibly linked to be paid once a month instead of twice. Makes you plan further ahead and spend your funds more carefully.

I'm not completely debt free, just yet... still have a small balance to pay off on one credit card now.
Because of the one paycheck-a-month system, I've been more careful and saved more money overall than I ever did anywhere else. The big problem with Japan is the retirement system and the lack of private retirement options.

I don't plan retiring completely, I think that would drive me nuts. But I would probably like to have a retirement income plus still be working in some manner.

Are you still planning on buying a place in Japan somewhere?

I'm still pretty sure I'll leave Japan in the next few years, but just not 100% sure.

Are you still planning on buying a place in Japan somewhere?

I'm still pretty sure I'll leave Japan in the next few years, but just not 100% sure.

Yes, after I get a little more permanently settled. I've been doing a lot of research as to where the best place may be to buy at is. I don't want to get stuck with a 1 hour commute on a packed train every day. (Tokaido, Saikyo, Joban and Keisei lines etc.)

Just waiting to see how the cards play out in the real estate market.
Karen is right on the money about the Japanese culture of saving. However, the twenty-somethings in Japan are fast catching up to the western idea of spend now, save later. And if you should buy a house in Japan, down payments are very expensive compared to the US. I am not sure about other countries, but the least you can put down on a house in the US is 0 dollars and usually as I remember the average was about 2000 US dollars. Probably, if you consider fees maybe you needed $10,000 to get into a good morgage payment bracket. In Japan, you need 3 to 4 times as much to put down on a house due to policies that are not used in the US. This money does not go to waste actually.

Now saying all that, the reason I signed up is because if you look back at the Clinton years, you will notice that the Clinton Administration used an economic scheme based on the Asian economic system. The US had a very good economy back then. Now the downside of that is that US companies with crazy surpluses, unlike the 1920s generation, squandered the wealth and left many investors broke. I suppose that is an issue of stewardship.

So, yeah, if you are a great steward of money like the 60 to 80 somethings in Japan, it is great. On the other hand, if you are not good with money, or have a bad job that gives you no bonus, then you will not be able to save much money in the long run. Japan and China are worried about this for different reasons. But when the old grandmas and grandfathers die out, then we will see if the young keep up the tradition of saving or just spend it up in a short time. If that happens, then Japan's debt will no longer be in house and that would set on the road to being like Greece.

So for now, this method of saving for the next year or old age is great, but most of that was done by the generation that experienced war, poverty, and then wealth again. Quite possibly, this is not an issue of East and Western philosophy, because their are credit systems in Japan that older people use... It is just not a credit card. Some type of paper that you sign and then you just get a bill for 100 to 200 times and then it finishes.

I guess the main thing to look at here is the simple fact that back in the day, the average Japanese man made 6 million yen a year. That alone is the reason for big savings. Bonuses help you too, but when I was in the US, I got bonuses, profit sharing, all that stuff and I had a savings. So I would merely argue that all this is related to the aftermath of war, the fact that Japanese people had more disposable money for at least 2 decades, the fact that most credit cards make you pay back your debt every month, the fact that credit card use is for expensive items rather than using if for everything, the fact that after you get a house, you get so many perks that makes living really cheap, and a whole bunch of other stuff that I really just did not see offered in the US. Inevitably, I think there is just as much credit card use in Japan as it is in the US. Perhaps you missed the whole lose a kidney show on NHK or TV Tokyo. If you are talking about old people that is one thing, but young people in Japan are just as broke as the rest of the world.
@Skinny James:

Excellent reply. *clap* *clap*

The only rebuttal I have to really point out is that I think it really depends on the jobs that younger people are getting these days. Relatively speaking, most of the professionals I work with have a great wealth of savings. The reason they do, is because of the fear of what will actually happen in the future. Could they be without a job? How long would that period last? More importantly, how much longer would any company last with the yen at such a strong rate?

We are seeing cutbacks all over the place in production numbers because of the export business costing two legs and an arm vs. the one arm or one leg. Japan still relies heavily on exports and it's killing their bottom lines. Thus, those employees employed by export based companies are nervous about the future.

A friend of mine works for one of the "Big 4" and even those guys with solid revenue streams are feeling the pinch. I believe 3 of the big 4 in Japan cut jobs, bonuses and trimmed OT down to almost nothing. I don't have any specific details to back up those statements, however the source is very credible.

There are a few companies hiring brighter talent at higher base rates hoping to keep that talent in house to help bring them out of the misery that is export.

Back to the original subject of savings, credit & surviving. Hands down, I've got enough cash on hand to buy a mansion or live comfortably for about two years without a job. When I came to Japan, I had about $5k to my name. That was IT. Scary. Yet, I have friends from various places that still are living paycheck to paycheck or even day-to-day for that matter. Those guys & gals cannot save as they have no stability.

If I'm raking in ~500,000/yen/month --- there's no excuse not to save about 60-70% of that. I can live on 150,000/month easily - and that's comfortable for me.

Gotta run (work), I want to write more about this later.

I really do not see anything wrong with the American system. This really comes down to stewardship and your personal financial priorities. As a group, the Japanese, do a better job at saving money. But if you compared what a garbage man in Japan makes versus what one in the US makes then we are looking at apples and oranges in terms of salaries. On the other hand, one could use good stewardship in the US, and save just as much as the Japanese do.

I experimented with some financial strategies and I saved a lot of money in a short period of time until I had to buy a new car. Then the whole thing went south. But as long as I cut all expenditures to the bar minimun and just bought things that were necessary or not too much outside my budget, everything was fine. So essentially what I found to be true in the US, is that you have to save for disaster more than here in Japan. As we look at Japan, we will not see that so much in our budgets.

In Japan, I cut my car payment, fuel costs, disaster fund (car repairs, maintenance), car insurance, fast food outings, and so on. So I took all that money and paid off debts. Then I took that money and put into special savings accounts where, at the time, the banks were matching my deposits. I then took that money and paid off another big debt. I mean it was easy to save money in Japan because I had less liabilities. I think that is the big difference in my case. Otherwise, I think things are the same here and in the US.

Japanese people are always telling me that it cost them 200 dollars a month to park their car, they have to pay for some inspection every 3 to 5 years or something that is outrageously high, and toll fees and other stuff. But when you make twice as much as the average American, this is really pocket change to them. So when you start making more than you can spend in your 20s and save well into your 30s, then I expect you to have a huge savings. Most Americans around here blow that money travelling around and the Japanese who do it, they eventually make it all back when they are older and move around less.

I just think that if you did research, the same type of person that saves in Japan can be found in the US or any country for that matter. So, I guess in a way, my position is that it is not all that much different to any cash and carry culture. If you believe in "buy what you need and not what you want", then you will have a savings. I think the Japanese have bigger ones because of their belief in paying people well. I met a waitress and she got paid way more than the average American makes even with tipping. I was very surprised. Someone did a salary comparison in Japan with a big company and found that it was better to work for 7-11 than it was to work for his Japanese company because of the retirement benefits alone. Which brings me to my next point....

Most Americans save their money in the retirement system. While Japanese people have a couple of savings systems-cash and pensions. So in the long run, the Japanese are better off when it comes to having money. Even old bums that worked hard early in life have more money than the average bum in the US. But at the same time the US worker that worked hard can get what they want through the banking system because the financial power is based on your yearly earnings. Of course now it is harder to get credit in America, but by making those installments, a person can still get that Harley, that scooter, electric car, solar power, or whatever without too much hassle. That is to say without even having much of a down payment on that high dollar stuff. I know people that worked for the government for 30 years that just walked on a Hummer lot and drove away with it. They live in shacks, but there is a 60k Hummer in the parking lot. I see this in Japan as well.

Now saying that, Japan's wealth was in manufacturing, we as since the 70s, America's has been in the banking industry and not only oil as they say. Banks and credit unions generate a lot of money in the US and that is no so much the case in Japan, although this is a growing thing due to the decline in manufacturing. I would say that in another decade, the banking system in Japan will catch up to the banking system in the US and Europe. They will have no choice but to do so, if Japan has indeed reached its peak manufacturing capabilities and is now in decline.

The economic graph shows a steady decline in salaries in Japan, hence less savings for those that are spend thrifts. Even a spend thrift can save money in this country. Thus the more need for credit cards amongst people who dont use them.
I just think that what we are looking at is just a time difference and a philosophy difference. Japan preaches patience and delayed gratification after hardwork. The item or object is a reward for all that hardwork. Americans believe in the reward now.

So I seen nothing wrong with either one, it just depends on how you view what financial power is. Is it hard cash? Is it the sum of your worth due to your salary over a period of time? Is it simply based on your job? I mean I have seen 22 year olds pay cash for cars on TV in Japan. They saved it by working at 7-11 or McDonalds, Yoshinoya, Ito Yokado. Brand spanking new! I rarely saw that in the US. So we are looking at philosophies that are related to gratification, social responsibility (which was very present in the 1940s), family responsibilty, and so on.
Don't think I can really can compete with either of you in this thread. I'll just say that Japan changed my views on savings, credit and overall lifestyle changes. I too have saved more cash while being in Japan than anywhere else I've been previously. Anything I purchase in a real store, I use cash. Anything online that I use a charge card for, is paid in-full at each month.

The only debt I have outstanding is one student loan which is due to finish up in 2012. I elected to keep paying on that to up my credit rating a little. However, I have been paying almost double payments for an earlier payoff resulting in less total interest charged.

IMHO, financial power is having cash in hand. Sure, most of us have to take a mortgage out to buy a mansion. A nice down payment and smart money management makes the life of the mortgage less painful. I don't like the idea of taking a loan out whether it be a simple revolving credit card balance or for something like a car.

Eventually, I'd like to have more financial freedom in the form of my own business where I don't have to retire if I don't want to. Or, can retire but yet still have a sizable income without drawing on retirement funds.

You were opened up to a new culture, the culture of responsible money management just like the rest of us. Don't be so hard on yourself.
I think the highlights have been covered here mostly.

Question though... see my new thread that I'm creating right now. (Should be obvious!)
Good read. Now I read in a newspaper not so long ago, since you were all talking about financial principals, okozukai and hesokuri, is the norm for salarymen and Japanese wives to follow on a money basis as it concerns saving money. What was shocking is that the amount in 1990 was 76000 for the man and now it is 36,500. Plus the fact that I also saw an article that states that Japan uses a check system on a limited basis so that the husbands can hide money from the wives. They do this through the company they work for and then at the end of a period, they cash their checks and their wives are none the wiser. That is interesting. Has anyone tried this at work?