And it’s not just retailers saying this. (Although, they’re probably not upset that we spent a record-breaking $52 billion in Black Friday sales this year.)

Countries That Spend vs. Countries That Save

In fact, the push to spend comes from a group that has no way of making a quick buck from us: economists.

They urge us to spend even though unemployment is still high (8.6%), more than 14 million U.S. consumers are still paying off credit card debt from last year’s holidays, and only 13% of Americans say that U.S. businesses are in good shape.

With all of this weighing on our shoulders, why should we be expected to stimulate the economy with our own hard-earned cash?

The answer is simple: We shouldn’t be.

Why We’re Encouraged to Spend

Consumer spending makes up roughly 70% of our country’s economic activity. So it stands to reason that more spending will help to stimulate our economy: Demand will increase, businesses will thrive and grow, and jobs will be created as a result of that growth.

In the United States, we are so convinced of the economic importance of spending that it’s almost impossible to believe that there could be economies that function without this constant influx of dollars.

But these economies do exist—and they’re thriving.

Countries That Save vs. Countries That Spend

Western and Northern European countries are known for their supersaver citizens. For example, in both Germany and Sweden, saving, not spending, is seen as a civic duty. In the past 30 years, Germany has maintained household savings rates between 10% and 13%, and Sweden’s current household savings rate is 13%. In contrast, the U.S.’s household savings rate dropped to nearly zero in 2005; it’s currently less than 4%.

A Closer Look at Germany

Rather than encouraging consumers to shop ‘til they drop, Germany pushes its citizens to save. Consumer spending makes up only 57% of the country’s economic activity, compared to the U.S.’s 70%. Sparkassen, or savings banks, are found throughout German cities; they feature no-fee accounts for the young and are charged with promoting financial education and literacy throughout German schools. Additionally, there are very few home equity loans in Germany, and credit cards that allow unpaid balances are rare.

What Can We Do?
We can’t exactly control America’s finances, but our own are a different story. Take control of your finances with Take Control Bootcamp, our ten-day program that will whip your money into shape.
TAKE CONTROL

Saving in Sweden

Saving, rather than overspending, is the rule of the day for both individuals in Sweden and the country itself. Compared to the United States, where credit card use rose in the first three quarters of 2011, household borrowing in Sweden slowed down each month in the last year. What’s more, the U.S. government currently holds more than $14 trillion of debt, while Sweden’s government will actually see a budget surplus this year.

To sum it up, Germany (the E.U.’s largest and most stable economy) and Sweden continue to prosper, while encouraging saving instead of spending. Why do economists here recommend the opposite tack?

In the U.S., Spending Equals Borrowing

On Black Friday this year, Americans charged 27% of their spending to credit cards, and 43% of shoppers admitted they spent more than they had planned. Considering that more than 14 million consumers are still paying off their 2010 holiday debt, these added bills will put people deeper in the red.

So, consumers are spending money that they don’t have, borrowed from banks which, as we know from the bank bailouts after the 2008 financial crisis, are none too cautious themselves when it comes to, well, having money in the bank. In short, an increase in consumer spending—when the spending is fueled by credit, rather than by cash—only serves to dig our economy further into a hole, even though it might improve certain manufacturers’ bottom lines.

We Don’t Have Enough in Savings

64% of Americans don’t have enough money in cash to cover an unexpected $1,000 emergency expense and would need to charge it. And that’s a one-time expense: When faced with sudden unemployment, or a struggling business in a down economy, most Americans find themselves totally unprepared. That’s why we recommend saving at least 10% of your budget each month (like the Germans and Swedes do). By saving this much every month, you’ll be prepared to handle a rainy day and weather a bad global economy. (Learn how much to save in an emergency fund, and how to get there: read this.)

So, How Do Their Economies Grow?

Yes, spending is necessary to stimulate an economy. But if it’s spending fueled only by credit, it’s good only in the short term and very bad in the long term, ultimately undermining economic stability.

Notably, both Sweden and Germany have prospered due to the success of their exports. Our country is four times as large as Germany’s, but Germany exports more manufactured goods than we do, making up more than one-third of the country’s economic activity. In Sweden, exports in the third quarter of this year have grown 8.2%, leading to GDP growth of 4.6% and contributing greatly to Sweden’s economic success.

Our takeaway? When U.S. companies encourage spending, they should not send that message to debt-burdened American consumers but to consumers and businesses in other countries. And by that, we mean that our country should, like Sweden and Germany, capitalize on its export strength—namely, the fact that we are the world’s largest exporter of services, generating a $130 billion surplus. By furthering exports of services and manufactured goods, both American businesses and our economy will grow—without encouraging Americans to dig themselves deeper and deeper into debt.

More on LearnVest

Are young people (in addition to frugal savers) crippling our economy? See what we think.
Find out more about why leverage is such a hot-button topic right now: read this.
Learn how the deficit super committee’s super fail affects you and the economy.

PREVIOUS Article Youthful Mistakes: How to Pay Off Your Credit Cards

NEXT Article Meet the Winner of Our $2,500 Sweepstakes!

What's New

Andrea Saga
I am a native Californian living in Sweden since the 1970′s. Yes, the economy is doing well here, but we are also influenced by how things go in the rest of the industrialized world. Swedes certainly have a feeling for being a small country and the fragile economic situation that puts us in. So it’s a balance all the time. Yet it truly seems incredible that so many Americans have gotten into so much debt. But I guess our government has set a very bad example! Hopefully 2012 will bring better prosperity for all and a sounder perspective on personal credit growth.
http://www.lifeinsweden.net
Anonymous
How does one write an entire article on consumer spending without once mentioning the paradox of thrift? And how does one write an article comparing the US economy to Scandinavian or European counterparts without mentioning how the strong welfare states overseas bolster everyone’s security and standard of living? It’s like writing an article on the ’60s without mentioning the space race or Vietnam.
CBN
Promoted via e-mail, this article had no fewer than three teases that started with “why.” Why we want to be like Sweden. Why shopping won’t save the US. Why spending won’t save the economy. And still I am left asking, why should I read this article.
Anonymous
Plus they just legalized pot… just sayin!
Herownjourney
Applause! I couldn’t be happier to read this article. I’m an American living in Germany and it’s true that they are a country of savers. Living in Germany has radically changed my own money and saving habits…for the better. You are generally forced to spend cash here, as most businesses don’t even accept credit cards, which eat into their bottom line. I end up not spending as much as a result. I have a credit card here, but it acts like a charge card (as your article mentioned), in that there is no way you carry a balance. The amount you put on it every month is automatically deducted from your bank account. Moreover, only 40% of Germans are homeowners and renting is the norm. When people do buy a home, it’s a really big deal, and typically you have to put a significant amount of money down. I’m really amazed by how living here has shaped my fiscal habits in a much healthier way.
Anonymous
Something else we have to take into account is that the Europeans provide university education to their citizens so they do not come out of college with huge debt from college loans which take 30 plus years to pay off (including interest) . They have a much better educated citizenry as they invest in their citizens’ educations. Pay is better there rather than what we have in the USA where jobs are sent abroad so CEO’s can rake in personal profit. And also, these countries have socialized medicine unlike the USA where people do without, die, go into debt, or go bankrupt trying to meet the medical needs of their families. This all means that Europeans can afford to save. Over here, we have to work 2 jobs just to pay the rent and bills. My husband and I use debit cards, checks, and cash ONLY. Still, we can’t save and we are frugal. Living in Europe is one sweet deal. In the USA, if we spend more, we go into debt which is what the banks and credit card companies want and the profits from the spending go directly into the CEO’s pockets, NOT to help the economy. The Germans and Swedes have a good thing going. We could learn from them.
- http://www.facebook.com/profile.php?id=776549215 Jane Hopke
  But they also have higher tax bills and less control over where their money goes. So they pay for services (i.e. college and healthcare) whether they use them or not. I’d rather have the option as to how my money is used.
  - http://www.facebook.com/people/Roza-Lee/1758411898 Roza Lee
    I am french and happy to have high tax bills who allow me to have medecine for free; i have ms and my mdedecine cost 1000 euros every months. I have ms since i am 19 so imagine how much i cost to my country. But they will give me free healthcare. You don’t know how your health gonna turn. I lived in florida and I work with so many sick people who work just to have healthcare through their jobs. You have to stop being selfish when we are talking about health. My country is so not perfect and it give financial help to sometime lazy people. But health and college is really important that is our future
http://smartasset.com/ SmartAssetTeam
This really cuts through the chaff and gets to the bottom of things. Americans seem to be all about instant gratification, but it takes planning and saving to build a strong and stable economy. So throwing cash around doesn’t solve problems. This is something we know on both the micro and macro level. This post makes me want to move to Sweden.
cpbb
I think that subject line is the single most unpatriotic thing I’ve been sent via email in 5 years. Is “Why we’d rather be Swedish” really a message you want representing your site? It’s bad enough that the world is full of haters, do we really need to agree with them?
A few years ago, in a London bar, the bartender (in a kind and gentle way) advised me to tell people I was Canadian. I was shocked. I said to him, “I appreciate your thoughtfulness in trying to help me, but first, I’m not a liar. Secondly, I love my country, just as much as you love yours. If you were sitting in a bar in New York and the bartender advised you to tell everyone you’re Australian, you’d be outraged.”
I can see how you’d want to be thought-provocative in your postings. Learn Vest. I really can. But honestly, it did not make me want to read this article. At all.
- Me
  I think there is a difference between being patriotic and opening ourselves to what we can learn from other countries. It doesn’t mean we have to be European. It just means that we should consider other options and see what we can learn. I wish Americans would just get over their high and mighty attitude that says they are the “best in the world.”
- the.patriot
  What I think is patriotic: questioning what the “experts” tell you (especially when it’s dubious advice), thinking logically and with common sense, and providing a solid basis on which to found your opinions. Sort of like the writer of this article, no? I think she was simply trying to provide good examples of how we can improve, because other countries have done so successfully. And for her to write truthfully, even though it goes against popular opinion, shows a great deal of integrity (which is also patriotic). What isn’t patriotic? Whining about the titles of articles, rather than assessing their content. If you can’t handle unsavory news, maybe you should stick to watching the Disney channel.
  P.S. ”Patriotism” refers to the thoughts, beliefs, and actions of the true patriots – i.e. the founders of this country. Maybe you ought to review your early American history so you really understand what patriotism is before you go throwing that word around, especially in the context that you did.
bittergrrl
I had to stop watching TV, because every time I see some politician, pundit or other talking head on TV say that Americans need to “go forth and SPEND!!!” To get the economy moving again, I want to throw a brick through the screen. Memo to all the politicians, pundits and other so-called “experts”: I DON’T HAVE ANY F***ING MONEY TO SPEND!!!!!!!
My husband and I always considered ourselves good stewards of our finances; we kept only one credit card each and paid off the balances in full every month, bought cars and a house worth far less than the so-called “experts” said we could afford, saved enough money to pay six month’s worth of expenses, and generally tried to keep our debt down to a minimal level. Then in late 2008, everything went to hell. My husband lost his job when his company abruptly filed Chapter 7 and ceased to exist; a month later, I was laid off from my job due to cutbacks from the cratering economy. A few months after that, my husband was hospitalized with what turned out to be Crohn’s disease. It would take several weeks of treatment (and some hellacious medical bills which we are still trying to pay) before he could even get out of bed, much less look for work. Eventually after a year of fruitless searching, and inspired by his medical experience, he decided to go back to school and retrain for a nursing career. Yep, healthcare is a hot field…unless you are a new grad, in which case no one wants you. So now he has student loan debt to go with his medical debt. Other than occasional temp jobs, he has yet to find work.
Meanwhile after over a year of looking I finally found a full-time job, but I make half of what I used to (at least it has medical benefits!) Add in an upside-down mortgage thanks to the cratered real estate market, and we are barely hanging on. Our savings is gone, though we have not tapped our 401(k)s…yet. We are down to one car, we cancelled cable and our home phone, we’ve sold much of our jewelry, book and music collections, and the credit cards are maxed out. We have thought about bankruptcy, or walking away from our mortgage, but we were both raised to believe that people who do such things are losers who fail at life, and we couldn’t show are faces at family gatherings if we ever did such a thing. It’s a good thing we never had kids, or we probably would be in forclosure or homeless by now. As it is, we have not exchanged birthday or Christmas gifts with each other since our ordeal began, and everyone else is getting home-baked loaves of pumpkin bread for Christmas this year, because that is all we can afford. We did everything “right,” and still we got screwed. And we aren’t the only ones.
The American Dream is dead, and the American economy is broken, possibly beyond repair. Thank you for articulating in this article something I have been saying for a while now; we need to fundamentally alter the way our country works, to focus on saving, producing and thrift, instead of buying cheap imported trash and toys we don’t need, with money we don’t have. We must stop letting the pigs at the top get piggier and fatter by sh!tting all over the rest of us. We need to become more like Germany and Sweden, instead of pretending we are superior to everyone else on the planet. We are not, not anymore. And if that makes me unpatriotic, frankly I don’t give a d–n. It’s my country too. Alas, I don’t think things will change until it is too late to save people like me.
Merry (ha!) Christmas. And to those who still think we can spend our way to prosperity, 3 words: Go. To. Hell.

My LearnVest is Unavailable

We are currently performing exciting upgrades to My LearnVest, we'll be back online soon!

Knowledge Center