‘Future Money’ and its impact on the attitudes of young Chinese towards saving
Frauke Mattison Thompson, Nottingham University Business School, China
Steve Worthington, Monash University
Abstract
There has been a dearth of research into understanding Chinese people as consumers and yet
with the growth of the Chinese economy, consumption in China is growing rapidly. There are
strong cultural differences between China and many ‘western’ societies, one of which is that
traditionally the Chinese have been encouraged to save, rather than consume. This paper
discusses the paradox of consumption and saving in China, by reporting on qualitative
research carried out with ‘young Chinese’ on their attitudes to holding and using credit cards.
‘Future money’ was a commonly used phrase, to describe how they perceive the use of credit.
Keywords: China, Credit Cards, Consumption, ‘Future Money’
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‘Future Money’ and its impact on the attitudes of young Chinese towards saving
Introduction
In May 2010 the Organisation for Economic Co-operation and Development (OECD)
predicted that China’s economy would grow by over 11 per cent in 2010 and slow to just over
10 per cent in 2011. The OECD also noted that Chinese consumers were making more of a
contribution to this economic growth, as a result of Chinese government initiatives to boost
domestic demand, as exports have declined due to the GFC. (English.news.cn, 25/06/2010)
The usage of plastic cards, such as credit and debit cards, has facilitated this increased
spending among the young Chinese affluent. Transactions are easier to make and do not
require the consumer to carry big amounts of cash with them, as was previously the case.
Further, plastic cards are seen by many as a status symbol, making their usage even more
attractive. Nevertheless, a recent report (McKinsey Quarterly 2009) suggested that, ‘relative
to China’s population and level of economic development, its consumers punch far below
their weight’. China’s consumption-to-GDP ratio is 36 per cent, only half that of the United
States and about two-thirds those of Europe and Japan. This is also reflected in the adoption
of credit cards. Whilst China’s credit card market experienced a 58 per cent rise in cards
issued, to 142 million in 2008, the overall market penetration remains low, with only 0.11
cards issued per capita. Much of China’s plastic payment cards are debit cards with no
revolving credit line, used primarily to access cash through ATM networks. Indeed by the end
of 2008 there were over 1.8 billion so called ‘bankcards’ on issue in China, for a population
of 1.3 billion.
The sources of China’s low consumption rate are both behavioural and structural (McKinsey
Quarterly 2009). China’s households are very savings centric; the average Chinese family
saves 25 per cent of its discretionary income, about six times the saving rate for US
households and three times the rate for Japan’s. This is due to several cultural factors. One is
China’s frayed social safety net, which causes the Chinese to save because they have to pay
for education and health care. Another is that the Chinese find it hard to borrow; only a small
proportion (11 per cent of younger households) have a mortgage and those that do, try to save
and pay it off as quickly as possible. Also in a country, where as a legacy of the ‘One Child
Policy’, young men considerably outnumber young women, a bachelor needs a car and an
apartment before a young woman will even look at him. There is research (Wei and Zhang,
2009), which suggests that households with sons accumulate assets, especially property, in
order to compete in the marriage market. This bids up asset prices for everyone else, forcing
them to save more as well. Wei and Zhang claim that this competition accounts for around
half of the increase in the household saving rate between the years of 1990 – 2007.
The thriftiest of savers are the young and the old Chinese. Urban households headed by 25
year olds save about 30 per cent of their disposable income, as do those headed by 60 year
olds (The Economist, October 3rd, 2009, p 9). Therefore, this paper concentrates on
understanding the attitudes of the young Chinese consumers towards consumption and saving,
with a particular focus on the usage of credit cards. Although the adoption rate of credit cards
is steadily rising, cash is still king, suggesting that the Chinese consumer perceive themselves
to have greater control over their spending when using cash, rather than when using credit
cards.
The paper discusses this paradox of consumption and saving, by reporting on qualitative
research carried out with ‘young Chinese’ on their attitudes to holding and using credit cards.
‘Future money’ was a commonly used phrase, to describe how they perceive the use of credit.
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Understanding the attitudes of the young Chinese towards spending and consumption allows
marketers to better focus their marketing strategies in this target market and provides
practitioners, particularly in the credit card industry, with and understand of how their
products are viewed and used by the young Chinese consumer. This will enable better product
development and marketing strategies.
Literature Review
Previous research (Tse, 1996) into understanding the Chinese attitude towards consumption,
discusses in depth the meaning of consumption in Chinese culture. Tse (1996) describes how
consumption was regarded in traditional Chinese societies, ‘more as a tool to serve higherorder needs, than as an activity in its own right’ and hence that ‘contrary to any impulse they
have to consume, the Chinese have traditionally been encouraged to save!’ However Tse also
argues that the recent economic success of China has transformed these attitudes so that the
Chinese people ‘have come increasingly to accept consumption as a normative life goal!’
Tse, et al’s (1994) research into the consumption behaviour of students in Hong Kong,
concluded that within well defined social groups, Chinese consumers would have more
homogeneous consumption patterns than would ‘western’ consumers and that they also would
place more emphasis on the opinions of their reference group in choosing what to purchase.
It is further argued (Wang, 2009) that the key to knowing the future of China’s consumer
market is essentially to understand China’s Little Emperors. China’s one child policy, started
in 1979, has created an extended, nuclear family structure of four grandparents, two parents
and one child, with both parents and both sets of grandparents lavishing attention and
resources on their only child. Thus the Little Emperor generation is a very attractive market
segment and with regards to their spending patterns, Wang (2009) claims that, ‘while older
consumers are not likely to build up debts because they have known poverty, young
consumers in the cities have started to spend more using, for example credit cards, as instant
gratification’. Further research on China’s Little Emperors, reported by Li, Jiang, An, Shen
and Jin (2009), examined how young Chinese consumers’ attitudes towards money affected
their compulsive buying behaviour and how gender moderates such a relationship. Their
research results show that the consideration of money as a means to buy high quality products
and brands increases compulsive buying among Chinese young consumers. Such an effect
was stronger for male than for female young consumers and the result is thought to some
extent to reflect the influence of materialism and ‘western’ values on the younger generation
in China. Their research was carried out with undergraduate students in Ningbo and Tianjin.
Further recent research (Smith and Hill, 2009) has concentrated on understanding the cultural
values of Gen Y Chinese consumers and this found that although there has been rapid socioeconomic change within China in recent decades, there is evidence to suggest strong value
system continuity. This resilience of Chinese cultural values implies that Gen Y consumers
are still very much collectivists with a high need for security, conformity and benevolence.
This might help to explain the suggestion made earlier that the thriftiest of savers are both the
young and old Chinese. In terms of attitudes towards early adoption of new products, the
enduring cultural values of China, as represented by the Gen Y Chinese, means that more
attention needs to be paid to collective and peer group influences on early adopters, with a
recognition that young Chinese will tend to gravitate towards the familiar, whilst generally
resisting that which is unfamiliar. The Little Emperors also have the pressure of maintaining
expectations from family, friends and society to be well educated and successful. The first
generation of Little Emperors is now in their 20’s and has entered university, hence
conducting research with both undergraduate and graduate students would seem to be
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appropriate, as is the assumption that these respondents will be representative of ‘young
Chinese’. Previous quantitative research with these ‘young Chinese’ was carried out in early
2009 and reported on at the ANZMAC conference in late 2009.
Methodology
This current study is based on research conducted in late 2009 and consists of a follow-up
qualitative study, that was preceded by the quantitative survey on the adoption of credit cards
by the young Chinese consumers. In the previous study we developed a survey instrument
that was administered to 156 undergraduate and postgraduate students at Nottingham
University Business School, in the city of Ningbo in China.
To follow up on this quantitative survey and to gain a more in-depth understanding of the
adoption of credit cards by the young Chinese consumer, we conducted four focus groups
with 10 students per session, in order to gain a more in-depth qualitative understanding of the
attitudes of ‘young Chinese’ towards both consumption and saving. These group sessions
lasted between 45 minutes and an hour, with participants selected at random from the sample
used in the earlier quantitative phase. The average age for the interviewees was 22, with a 5050% share of male and female students. On average these students have an annual ‘income’ or
spending allowance of 20.000RMB (or US $3000) each, which roughly twice as high as the
average wage in China.
All interviews were taped and transcribed with the analysis following basic grounded theory
methods (see: Strauss and Corbin, 1998; Miles and Huberman, 1994; Charmaz, 2006). Next
we discuss the results of our qualitative research, by reviewing them in themes that are
designed to illustrate the sometimes conflicting attitudes. The quotes below are taken from the
taped interviews and the F and P ‘s relate to the participant code names that are used to ensure
anonymity and protect the participants’ privacy.
Results
Guilt and ‘Future Money’
The adoption of credit cards by the ‘young Chinese’ is tempered by concerns for the loss of
financial control that is associated with use of credit cards.
‘I don’t like using future money for paying for now … I try to control my spending, as
otherwise I would overspend with my card.’ (F3, P7).
Indeed, a substantial number of focus group participants were of the opinion that using cash
would avoid people getting into debt.
‘When I have cash I know how much I have before I go shopping and how much I have
afterwards. I can see what I have spent. But with a credit card I don’t know. You don’t
have the same feeling.’ (F2, P2).
‘With cash I can feel how much I have spent, with a credit card, I do not … it
encourages spending.’ (F2, P3).
Interestingly, those students that agree with these statements are not dependent on the level of
card usage. It was identified that although some students are heavy credit card users, they still
do not overspend on their monthly limit, they pay off their cards in full at the end of the
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month and use their cards more as a debit card than a credit card. This suggests that despite
heavy usage, the fear of debt overpowers the need to over consume.
Further the notion of guilt was introduced whilst talking about using credit cards as opposed
to cash. One respondent said:
‘I feel guilty. I don’t like using future money to pay for today. I did not make any
money today and I still use money (to purchase products) when I use my credit card …
I feel guilty for that’. (F2, P6).
Another student said:
‘I cut up some of my cards and do not use them anymore, because I was spending too
much and didn’t save anything.’ (F1, P1). ‘I get money from my parents and so I am
very strict with myself about how much I spend.’ (F3, P6).
Clearly there is a fear of overspending when using credit cards that is not felt when using cash
as payment method. This is also reflected in their narrative about their parents and the older
generation:
‘Chinese people are still very conventional. They don’t like using future money that
they have not earned yet. They prefer using cash that they know is theirs.’ (F1, P2).
Nevertheless, sceptics were of the opinion that overspending is something that depends on the
individual:
‘You know, I think it depends. I know many people who were in debt to other people
before having cards. I have a card and I never owe the bank money. Never more than
I have.’ (F3, P1). ‘I really think it depends on the person … I can control myself.’ (F1,
P1).
Marketing and Credit Card Adoption
High and moderate users of credit cards are more likely to believe that on balance there are
more advantages to paying by credit card than cash, whereas infrequent or low users are less
likely to hold this view. This could be explained through debt-aversion by infrequent users
and the fear of overspending, as mentioned above, as well as through the benefits perceived
from holding credit cards. Indeed several participants mentioned marketing promotions such
as magazine subscriptions and loyalty programmes as part of their credit card usage, as
incentives to use their cards more often.
‘With this card, I get a discount when I go shopping. After so much time, I get a free
meal.’ (F3, P5). ‘I got this card, because I got a 1 year magazine subscription with
Vogue.’ (F1, P1).
‘For example, if I use this card, I can get a discount for cinema tickets at Wanda (a
local shopping centre). And I also get a discount at some food outlets there.’ (F1, P6).
Clearly in these cases, the lure of marketing promotions outweighs the earlier perceived riskaversion. This is particularly so with marketing promotions that advertise discounts and
additional free products as they seem to be most effective, by playing into the hands of the
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cultural perceived necessity to both save and yet simultaneously accumulate products to show
wealth to the outside world.
The Generation Gap
There is evidence that credit cards are still an uncommon method of payment in China, with
over half the sample in the qualitative survey (54%), agreeing or strongly agreeing with the
statement that cash is still king. It would seem that it is particularly the younger generation in
China, who use credit cards, whilst older generations and even very rich business people still
prefer to use cash as a signal of affluence.
‘My parents always use cash.’ (F1, P1). ‘You know, the older generation still prefer
cash.’ (F1, P1). ‘Cash is still king… a businessman with many cash notes in their
wallet shows that he is affluent. It shows that he is rich. Cash is still, king.’ (F3, P1).
‘My parents hate cards, they only ever use cash’ (F1, P6).
Signalling wealth is a very important aspect of Chinese culture, which hence encourages the
use of cash over credit cards to signal affluence to others. Yet clearly the adoption of credit
cards is divided by a generational gap whereby the young are more likely to use credit cards
than the older generation. Nevertheless the adoption of credit cards even by the young
affluent is still hindered by the fear of over spending and debt.
Conclusion
The resilience of Chinese cultural values and the argument that Gen Y consumers are still
very much collectivists with a high need for security, conformity and benevolence is also very
much reflected in our findings. The young Chinese consumer, despite rapid economic growth,
rising wealth and disposable income and higher consumption rates, still tends to conform to
the cultural norms of the older generations. Predominantly a fear of debt hinders excess
spending and the use of credit cards. This is linked to a perceived guilt when spending ‘future
money’ that has not yet been earned.
Nevertheless, in terms of credit card usage and adoption rates, marketing tools, such as
promotional discounts, seem to have a positive effect. Our findings show that some
consumers adopted a credit card for their spending as it allowed them a discount at a local
shopping mall or provides them with a magazine subscription. Clearly the need to save is still
present through the adoption of such credit cards with promotional discounts over normal
cards, yet the aversion to card usage seems to be reduced, as it is the mechanism for accessing
these discounts.
For marketers this means that marketing strategies such as promotional discounts and
additional ‘free’ product offerings are very successful in encouraging consumption in the
Chinese market. Marketing strategies should include a ‘saving’ aspect in order to be
successful. For products such as credit cards, these promotional marketing tools facilitate
greater adoption.
These findings will guide further research, which is planned to focus particular attention on
the overseas travel experiences of the ‘young Chinese’ and hence to their exposure to the use
of credit cards in their travels. This next phase of the research will aim to explore whether
these overseas experiences influence the continued use of such credit cards, by the ‘young
Chinese’, when they are back in mainland China.
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