Socking It Away in Japan

By Barry Hillenbrand/Tokyo

When Yozo Matsuoka was a manager at Honda's European operations in Brussels during the early 1980s, one of his neighbors was a Belgian pensioner. "This man lived a life beyond our imaging," recalls Matsuoka. "He owned his house, drove a nice car and rented a cottage in Spain for five months a year. I knew that they paid lots of taxes for the social-welfare system in Belgium, but I realized with envy the security they got in return."

Matsuoka, 46, is back in Japan now and, like most Japanese, is busy saving to ensure that in retirement he will enjoy something like the comfort his Belgian friend had. Every month 10% of Matsuoka's after-tax paycheck is automatically deducted and put into a company savings program. But Matsuoka's wife, who, like most Japanese wives, handles the family finances, is unsatisfied. She salts away even more cash from Matsuoka's twice-yearly bonuses.

Though Japan may be one of the world's most financially successful nations, its citizens worry about their futures as if they were impoverished. They fret over high tuition bills for their children, over the cost of buying a new house and especially over having enough money once they retire. Corporate pensions have nearly risen to the level of other industrial nations, but most Japanese consider such benefits inadequate. When Matsuoka reaches Honda's mandatory retirement age of 60, for example, he can expect a company pension of about $1,500 a month (with no cost of living increases). "I can't live on that," he says.

His concern is a common one in Japan. Says Johsen Takahashi, chief economist of the Mitsubishi Research Institute: "We have a strong feeling that we have to take care of ourselves. The pension system, while greatly improved in recent years, is still not trusted. Many Japanese fear that a change in government or severe inflation would sweep away their future."

And so the Japanese save and save and save. The typical family has about $61,000 put away, which amounts to 1.7 times the average annual salary. The most popular places for Japanese savings are the more than 23,000 branches of the government's Postal Savings Bureau, even though interest on its accounts runs as low as 1.7%. The bureau's $871 billion in deposits makes it the largest savings institution in the world.

Ironically, the Japanese do not have a long tradition of thrift comparable to the Puritan ethic, which for centuries conferred upon Europeans (and, subsequently, Americans) a sense of moral rectitude for every penny saved. A dedication to saving became ingrained in the Japanese psyche only in the late 19th century, when the government, under Emperor Meiji, began cajoling the people into saving to supply capital for industrial modernization and, later, war.

After World War II, government policy continued to reinforce the saving ethic. In a mirror image of the U.S. system, interest income in Japan is exempt from taxation, while interest payments on loans do not qualify for tax credits. The Japanese have always saved, rather than borrowed, to finance such major purchases as cars or houses.

But as Japan's trade surplus has piled up and stirred resentment among other nations, the government has been forced to change its stance. National policy now calls for a boost in consumption so that Japanese manufacturers can sell more at home and less overseas. Beginning next year, interest on savings accounts will be taxed at a 20% rate. In the meantime, at least part of the population has started to loosen up. Credit-card use has risen sharply, especially among the young, and some Japanese are going into debt to take vacations or buy TV sets.

But though debt is a new growth industry in Japan, the average family's ratio of obligations to savings declined last year. Reason: the Japanese are putting more money into Tokyo's surging stock market, which, despite recent setbacks, has raised Japan's mountain of savings to new heights.