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Impact of Factors of Housing and Education On China’s High Saving Rate

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Introduction

Many economic studies have focused on investigating China’s high savings rate in recent

years (Yang et al., 2012, p. 4). China’s exceptional savings rate is attributed to numerous

variables, including housing and education costs. We’ll examine these two crucial areas to

understand China’s strong savings culture. The complex interaction of financial behavior with

the economy is examined in this study using theoretical frameworks, real-world examples, and

policy consequences.

Education Expenditure and China’s High Savings Rate

China’s strong savings rate, a crucial economic factor, is linked to education spending.

For the first time, this in-depth study examines how education-related financial needs affect the

nation’s tendency to save money. The high growth of household savings in China, predicted to

reach 92,598.58 billion yuan in 2020, illustrates the complex relationship between economic

pragmatism and educational outcomes. The positive correlation between per-capita culture,

education spending, and savings account balances illuminates this intricate relationship. The

consolidation of university fees and broad enrollment efforts are changing the landscape of

higher education, forcing families to proactively manage rising academic costs (Ji, 2022, p. 9).

The life cycle theory and preventive savings hypothesis explain how education-related

uncertainties affect saving behavior psychologically and financially. Both ideas investigate

schooling and savings. Education fees’ inherent uncertainties encourage more significant savings

and lower consumption since people strategically plan their consumption and savings over time.

As seen by residents’ savings bank balance growth rate curve, educational uncertainties

significantly affect precautionary savings. Yan et al. (2021, p. 2) state that education is more than

an expense; it affects Chinese households’ financial decisions.

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Educational Dynamics

Educational dynamics have a lasting impact on savings patterns, as shown by the

favorable association with education industrialization reform and savings deposits. Expanding

higher education is a positive step toward society’s development and increases household

financial obligation. China’s high savings rate is driven by sophisticated financial mathematics,

which can be better understood using real-world examples from families navigating school

spending changes. To make matters worse, the correlation emphasizes the need for governments

to examine all education-related financial obligations. The policy must go beyond economic

measures to address the social impacts of education-driven savings practices. This is because

education is becoming more critical in household financial decisions (Wang & Moll, 2010, p. 2).

In response to escalating higher education prices, young parents in urban China start

saving money early to ensure their children’s academic success, supporting the life cycle theory.

The major reason that fuels this is for the parents to help their kids succeed academically. This

preventative technique follows the notion and shows how education uncertainties affect saving

money psychologically.

Policy Interventions and Implications

To comprehend the complex relationship between schooling costs and China’s high

savings rate, governmental measures and their effects must be thoroughly analyzed as this

understanding is needed to grasp the relationship. The current domestic landscape has a single

investment channel and barriers to entry in high-return industries, requiring deliberate policy

measures to encourage financial diversification and reduce the burden on individuals,

particularly middle-income and high-income earners. This is because these two components

define the domestic landscape. Vigorous capital markets have redirected family funds to
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productive investments in these cases. For instance, Singapore’s proactive commitment to

financial diversification and investment options may inspire other nations (Cheang & Lim, 2023,

p. 6). Singapore offers its inhabitants many investing options using this strategy.

Chinese education expenditures, pushed by the country’s highly competitive system, are

another major cause of significant savings. According to Liu and Helwig (2022, p. 2), the

“gaokao” system forces families to spend a large portion of their money on their children’s

education. This is because the system helps families finance schooling. The desire for

outstanding education becomes a primary motive for precautionary savings, reflecting that

education promotes socio-economic mobility.

A vibrant and well-functioning capital market is needed because domestic equity

financing as a percentage of GDP increases household savings since the two components are

connected. According to Foster et al. (2021, p. 82), a proactive policy encouraging middle- and

high-income earners to participate in the equity market could change savings dynamics and level

the economic playing field.

Chinese schooling is famously expensive, which may explain why they save so much. In

order to reduce school funding concerns, policymakers must extend the capital market and obtain

more cash from various sources. The study by Niu et al. (2020, p. 3) suggests that China may

need to balance financial education with proactive government measures like teaching families

about money to create a more complex and long-lasting savings system.

Housing and China’s High Savings Rate

The peculiar correlation between rising property prices and rising family savings is

illustrative of China's one-of-a-kind savings-to-income ratio, which can be seen in the

relationship between the two. This study investigates the complex relationship that exists
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between the savings practices of Chinese families and the financial requirements that are

associated with housing. In order to demonstrate how this connection operates, the analysis

makes use of case studies and examples taken from actual life.

An astounding 92,598.58 billion yuan had been saved by Chinese families by the time the

year 2020 rolled around. A great deal of attention has been drawn to this enormous sum of

money as a result of the abrupt increase in property prices. Let's take a look at the correlation

between rising housing prices and rising savings in order to illustrate how convoluted China's

financial system is. The association between these two variables demonstrates the intricate nature

of China's banking sector. According to Mazáček (2023, p. 8), the fact that individuals are

encountering difficulties in purchasing homes due to the escalating expenses is one of the

reasons why Americans save a significant amount of money.

Both the life cycle theory and the preventive savings hypothesis explain the intricate

relationship between the dynamics of housing and savings. According to the life cycle theory,

individuals plan their consumption and savings throughout their lifetime (Castro et al., 2020, p.

5), with homeownership being a significant factor in this planning process. According to the

preventive savings hypothesis, uncertainty contributes to an increase in savings while

simultaneously reducing consumption. The strong relationship between housing-related

uncertainty and precautionary savings is demonstrated by the association between fluctuations in

home prices and the growth rate curve of residents’ savings deposit balances.

Housing Ownership and the Financial Landscape

After the 1990s housing reform, more people bought homes, highlighting the financial

challenges of homeownership (Zhang et al., 2018, p. 14). The down payment impact, mortgage

effect, and wealth effect help explain how housing-related financial pressures affect saving
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behavior. Shanghai’s real estate market shows how growing costs drive families to save and

overspend (Liang & Smith, 2020, p. 3). The need for large down payments and a shortage of

housing financing options intensify the savings need, especially for rural-to-urban migrants.

Thus, the housing factor becomes a significant influence, helping China retain its habit of saving.

Real-world examples of families overcoming homeownership challenges offer valuable

lessons. The 2008 Wenchuan earthquake highlights the intricate relationship between unexpected

events, housing dynamics, and savings behavior. Families affected by the earthquake had to deal

with immediate financial uncertainties, which increased precautionary savings (Dongmin et al.,

2020, p. 11). In 2008, the Wenchuan earthquake left households repairing their houses and facing

financial uncertainty due to housing interruptions. This dramatic example shows how unplanned

circumstances can cause a surge in precautionary reserves.

Policy Implications and Long-Term Sustainability

A strategic policy plan is needed to understand the interplay between housing finance

pressures and China’s high savings rate. Due to the considerable savings in large bank deposits,

measures are needed to stimulate financial resource diversification and capital market growth in

each nation. The fact that family savings boost domestic equity financing in GDP shows the need

for actions to reduce savings concentration in traditional banking channels. Creating a lively

capital market and diversifying investment channels may change savings.

International models show how home affordability regulations and comprehensive

financial education have redirected resources to more productive ventures. Australia’s efforts to

improve housing affordability and financial literacy may be valuable. The City of Sydney aims

to have 7.5% of its housing supply, or 11,000 homes, affordable by 2030 (Morris, 2021, p. 1).
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China’s strong savings culture is influenced by housing financial pressures, as shown by

the Wenchuan earthquake. A proactive social policy that removes homeownership barriers and

supports financial variety could rebalance savings dynamics and balance the economy. A three-

year study (2009, 2012, and 2018) found a dynamic relationship between social capital and

household economic recovery. Pre-crisis home relationships are favorable in the short run but not

for long-term economic recovery. After a disaster, core relationships help households recover

economically. According to the findings, pre- and post-disaster social capital affect household

economic recovery differently. A household’s ability to proactively develop social connections

after a disaster is crucial to its recovery (Xiang et al., 2021, p. 1).

Conclusion

In conclusion, housing dynamics and education spending boost China’s savings rate,

demonstrating how economic decisions affect society. Chinese household financial strategy is

highlighted by the paradoxical interplay between rising housing prices and expanding savings

and the intricate financial math of education expenses. Governments must address housing and

education spending to sustain economic growth. Financial diversification and regulatory changes

may help China balance and improve its economy by shifting savings habits.
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