America vs. Singapore: You Can't Save Your Way Out of Economic Shocks
This story challenges the long-held behavioral economics belief that under-saving is mainly a personal self-control issue. Instead, it argues that economic shocks and inadequate institutional support are the primary drivers of saving regret, drawing a stark comparison between the US and Singapore. It's popular on HN for its data-driven critique of conventional wisdom and its implications for public policy.
The Lowdown
A new working paper, highlighted in this piece, upends the common wisdom that individuals' failure to save adequately for retirement stems from procrastination or a lack of self-control. Through a comparative study of the United States and Singapore, the research reveals that exposure to negative financial shocks, rather than individual behavioral traits, is the overwhelming predictor of saving regret. The study posits that under-saving is less a personal failing and more a symptom of a society's failure to build robust institutional buffers against life's inevitable setbacks.
- The study surveyed thousands of 60-74 year olds in the US and Singapore, finding that across 12 psychometric measures, procrastination did not meaningfully predict saving regret.
- Conversely, experiencing negative financial shocks—such as unemployment, large health expenses, or earnings shortfalls—was the dominant predictor of wishing one had saved more.
- Americans report significantly more negative financial shocks (69%) than Singaporeans (46%), and these shocks are more financially scarring due to weaker institutional support.
- Singapore's Central Provident Fund (CPF) mandates compulsory contributions for retirement, housing, and healthcare, creating pre-emptive buffers that are not easily diverted.
- Singapore's labor market policies focus on re-employment and gradually introduced modest jobseeker support, while the US unemployment insurance system is fragmented and leaves three out of four jobless workers without benefits.
- Health spending shocks have radically different financial consequences: a US health shock increases saving regret by 24 percentage points, compared to only 10 points in Singapore, due to systems like MediSave.
- "Probability numeracy"—the ability to reason about uncertainty and likelihood—was strongly associated with lower saving regret, more so than traditional financial literacy.
- The paper concludes that strengthening social insurance against catastrophic risks and establishing better institutional infrastructure for risk management would be more effective than behavioral "nudges."
Ultimately, the research suggests a paradigm shift: under-saving should be reframed not as a deficiency in individual willpower, but as a systemic failure to provide adequate institutional infrastructure that enables households to effectively manage and weather economic risks. The comparison between the US and Singapore powerfully illustrates how different policy designs yield dramatically different outcomes in financial security.