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Ozan Acar - [Archive]

Turks love credit cards but hate saving 28/04/2012 - Viewed 5617 times


Why do people save? So that they can consume more in the future. The day to go on a diet is always tomorrow, but we would never think of postponing a good plate of baklava. I guess this is in our nature as humans. Our emotional intelligence (the limbic system of our brain) makes it difficult for us to oppose the temptation of immediate consumption and resists the idea of saving[1]. Looking at the consumption and saving propensities in Turkey, I could not help but wonder whether the limbic system is obstructing things a little bit more for Turks. A new database by the World Bank supports this notion.

Turkey has a severe spending problem. We consume and invest more than we earn have to finance the gap with foreign funds. That leads to a current account deficit problem. This obviously concerns everyone, and most of all the economic administration. Two economic measure packages were announced in April in order to alleviate the current account deficit as it reached record-high levels. The first measure is the new incentive scheme announced by the Ministry of Economy. One component of the scheme consists of measures promoting domestic production of intermediate inputs that are currently heavily imported. The second one is the new policy of the Undersecretary of Treasury and the Ministry of Finance tailored to increase savings and to diversify tools of finance. One chief objective here is to increase participation in the system through changes in the private pension system. It is out of the scope of this commentary to discuss whether or not the package is compatible with this objective[2]. Suffice it to say however, that the second one has better chances in the fight against the current account deficit.

But let’s not go on that tangent. The World Bank has recently put out the Global Financial Inclusion Database (Global Findex) financed by the Bill & Melinda Gates Foundation[3]. The reference study was run by Aslı Demirgüç Kunt and Leora Klapper. Thanks to the Global Findex, it is now possible to analyze the worldwide relations between people and financial systems, savings and investment tendencies, as well as bank and credit card usage. The Global Findex is based on a survey that includes 18 questions, carried out during 2011 in 148 countries with a sample of more than 150,000 adults. The best thing about it is that it enables cross-country comparisons. During its study in Turkey, the survey conducted through face-to-face interviews with 1001 adults between April 14 and May 11, 2011.

So how does Turkey compare with the rest of the world in terms of saving and consumption propensities? Let’s start with savings. Survey participants were asked if they had saved any money over the previous year (2010). The results clearly depict how savings behavior differs across countries. Almost 36 percent of the participants from 148 countries saved in 2010. The ratio is 34 percent for the upper-middle income group that includes Turkey. The share of Turks who saved over 2010 is only 9.5 percent. Ranked by the share of adults who have saved, Turkey is 144th out of 148. The four saving less are Georgia, Egypt, Pakistan and Montenegro. A dismal view indeed.

The Global Findex data suggest that wealthier countries tend to save more. Figure 1 shows for OECD countries the positive relation between per capita income and the share of individuals who saved. Turkey performs worse among OECD countries. Chile and Mexico, which are peer OECD countries with similar income levels, the share of participants who saved in 2010 is twice as much as that in Turkey. In other words, the low savings rate cannot be explained solely on the basis of the level of income. Again, maybe our limbic system is to blame.

According to the survey results, only 4.2 percent of participants from Turkey hold accounts in financial institutions. This means that from the perspective of savings, Turkish citizens are detached from the financial system. How about borrowing from financial institutions for consumption finance? 5 percent of survey participants from Turkey borrowed a loan from a financial institution. The ratio for upper-middle income countries is around 7 percent (excluding credit card usage). The ratio of those who borrow from family or friends is 43 percent in Turkey and 27 percent in upper-middle income countries. Participants from Turkey thus prefer borrowing from family and friends over borrowing from the financial sector.

The picture is completely different when credit card usage factors in. It turns out that credit cards constitute the biggest link between individuals and the financial sector in Turkey. Credit card usage is much more common here than in most other countries. Over 2011, Turks used 54 million credit cards and spent 294 billion liras. I even witnessed people looking at those who do not have a credit card or who have a low card limit with suspicion. Also, we are highly creative about credit card usage when compared to the rest of the world. I know of no other country where installments on credit card expenditures are so diverse.

As Global Findex data suggests, Turkey competes with high-income countries in terms of credit card usage. 45 percent of the participants from Turkey use credit cards while the rate in high-income countries is around 50 percent. Figure 2 depicts the relation between the share of participants who use credit cards and per capita income among OECD countries involved in the Global Findex database. As welfare increases, credit card usage becomes more prevalent. Though it is one of the least-income countries of OECD, Turkey is close to Spain, Denmark and Netherlands in the prevalence of credit card usage. Turkish people use credit cards to spend in advance the income they will earn months later. In developed countries however, the main purpose of credit cards is to save people from the burden of carrying cash. They see the issue with a completely different perspective than Turkish people do.

Consequently, Turkey is a country which saves less but consumes more through credit cards. This is what the comparisons based on the Global Findex database suggests. We postpone the diet while our bellies expand, trusting that the future will somehow be brighter than today. We’re only fooling ourselves. Maybe it is time to start thinking about how to change our limbic system.




[1] S. McClure, D. Laibson, G. Loewenstein, and J. D. Cohen, "Separate Neural Systems Value Immediate and Delayed Monetary Rewards", Science 306 (October 15, 2004), pp. 503-7.

[2] For TEPAV’s evaluation on the new incentive scheme, please see (in Turkish) http://bit.ly/KaVzMj

[3] The report on methodology and results summary can be found at http://bit.ly/K1IQat

*Ozan Acar, TEPAV Economic Policy Analyst, http://www.tepav.org.tr/en/ekibimiz/s/1212/Ozan+Acar

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