The most recent chapter in my business Chinese class brought up the issue of the 零储蓄族, the “zero-savings group”. The chapter was especially interesting in the context of my post a few days ago about the large number of luxury stores here in Wuhan, and in China in general, relative to the average income, as it gave another possible explanation for why there might be higher spending power than average incomes might suggest.
According to our textbook, there’s a growing group of people who spend their entire monthly income, not because they need to in order to obtain the necessities of daily life, but because they’d rather put their money into consumption that improves their short-term quality of life rather than into long-term savings. Most people in this group are apparently young people under 30, who are generally unmarried and with stable jobs.
Their spending patterns stand in sharp contrast to those of the older generation, among whom many save every penny, even when they have reached a level of financial security that should allow them to spend more money on improving their standard of living. Our book calls these two types of consumers “超前消费” and “滞后消费”， “pre-income consumers” and “post-income consumers”, and claims that they represent 12% and 26% of total consumers, respectively.
So why is there such a disconnect in spending patterns between the older and younger generations? According to the textbook, young people who spend their entire income are characterized by a high level of confidence in their job security and their future earning power. They feel safe spending their money, because they’re sure they’ll be able to make more. In addition, they see money not as a good in itself but as a means to acquiring a more comfortable lifestyle. Some might see spending money on clothes or gym cards as an investment in themselves which will in turn increase their future earning power — especially in the context of low interest rates that make savings account at the bank less attractive (and maybe a less developed system for channeling small savings into other forms of investment). More often than not, they’re young women, who presumably expect that they’ll eventually get married to someone who will hold the main responsibility for providing for the family.
On top of these reasons, I’d speculate that having parents who belong to the other extreme — parents who save every penny because they’ve lived through lives where they’ve had to, and in many cases now have pretty significant savings account that they’re fulling willing to spend on their only child — also provides a safety net that allows young people to spend their disposable income with more confidence. In other words, the 超前消费 exist precisely because the 滞后消费 exist.
The book is a few years old and it’s unclear where these numbers come from, but either way, 10-15% of consumers who spend most of their disposable income is a pretty big group of big spenders. Even if these young people are only making somewhere between 1500 and 3000 rmb a month, if a lot of these people aren’t saving any of their money, maybe live with roommates or even with their parents and don’t have any major expenses, then that could help explain how they can afford Starbucks frappuccinos and even Versace purses.
edit, 18/10/2009: I talked to my students this evening about how much they expect to make when they graduate from university, and those who were finance majors said that starting salaries in Wuhan for jobs in the finance sector are around 800 yuan per month, which might rise to 2000 yuan after two years of working. They also said that if you go to Beijing, Shanghai or Shenzhen, salaries are significantly higher, as much as 8000 yuan or more per month for starting salaries in finance. A few students said that they would probably continue to get money from their parents for the first few year while they’re working, and those who weren’t getting money from their parents just live extremely frugally. The 12% or so of consumers who belong to the high-spending and low-savings group clearly don’t represent everyone under 30 — it would be interesting to see a more detailed break-down of incomes and spending habits.