By RICHARD SINE
It is a scene that's stunningly common in Vietnam, from the tiniest villages to the sprawling metropolis of Ho Chi Minh City. Each day, people gather to play a game that looks to an outsider like one part poker, one part bingo. Over 50-cent coffees at dusty sidewalk cafes or over $50 bowls of shark-fin soup at lavish Chinese eateries, players scribble bids onto slips of paper and hand them over to the game's so-called master. After a moment of suspense, the host declares the highest bidder as the winner of that month's pot. Typically, the winner breaks out into a broad smile and then treats the group to dinner or a round of coffee.
The ritual is called hui, and to the uninitiated, it can look an awful lot like gambling. But while it has created its share of controversy (more on that later), many of the locals who participate in it say it actually creates a savings regime, built around complicated rules, communal trust and no small degree of personal discipline. Though practices vary widely, a hui generally works like this: A group of people agree to make regular fixed payments -- say, once a month -- into a common pool, which is promptly awarded at the end of each meeting to one of the group's members (the one with the highest bid that day). The other players' donations are reduced by the amount of the winner's bid, so the winner winds up, in essence, paying interest to the group for the pot he wins. And here's where the discipline and trust factors come in. Everyone has to ante up in every round, even after they've won -- and each hui member can claim the pot only once a year.
Strange as all this may seem, the end result of these exchanges is nothing less than what the World Bank called a "rotating savings and credit system" -- something akin to a savings-and-loan but without the marble columns, aggressive marketing and stuffed-animal giveaways. And even though this system is informal, low-tech and utterly unregulated, an estimated six of every 10 Vietnamese households participate in some form of hui, according to research firm Cimigo -- and it generates what experts say is a strong saving mentality for citizens who, on average, live on less than $4 a day. Retiree Tieu Thi Thanh Hoa, who lives in the coastal city of Da Nang, recently used her winnings to buy a new refrigerator. In the past, she says, she's put enough money away to pay for a motorbike and buy gifts for her children's weddings. "The hui, to me, means saving," said Tieu, 53.
Americans trail much of the world when it comes to saving for retirement or a rainy day. But what makes some nations' citizens frugal, while others' are prone to spending sprees? A look at some of the cultural and political factors behind the world's national savings rates (as a percentage of GDP).
It's no secret that among the world's wealthy nations, America has one of the worst personal savings rates. The average two-income American couple takes home about $75,000 a year but saves only $3,750, according to the U.S. Bureau of Economic Analysis -- about a 5 percent savings rate. True, it could be worse -- at the height of the housing bubble, we were saving only 1 percent -- but economists say it's still embarrassingly low. And its ramifications are enormous: Witness the legions of baby boomers who say they can't afford to retire and of undergrads who run up six-figure debts to go to college, to say nothing, of course, of the armies of overleveraged home buyers who helped inflate the housing bubble. "We've borrowed a lot, maybe more than we should," says Erik Hurst, an economics professor at the University of Chicago's Booth School of Business. Even when one measures the national savings rate as a percentage of GDP, the metric preferred by the World Bank and other international organizations, the U.S. comes up well short, at 10 percent.
In Vietnam, by this measure, the savings rate is some three times ours. And across the developing world, other countries boast similarly impressive rates. India and China clock in at 28 and 51 percent, respectively, even though each nation has an emerging middle class that aspires to spend on American-style luxuries. Sometimes a country's high savings rate stems from cultural traditions -- the need to bring a hefty dowry to a marriage, for example, or a severe climate that leads people to sock money away for lean times. But economists are finding that in high-saving countries, there's often a social ritual involved, whether it's a game, a savings club or even the structure of a religious group. "These informal groups are really powerhouses in terms of sucking up extra savings," says Daryl Collins, a director of the consulting firm Bankable Frontier Associates, which specializes in financial services in poorer countries.
To be sure, there's no shortage of reasons why a savings culture like Vietnam's might not translate stateside. In many countries, people have to save more because health and property insurance as we know it don't exist. And the informality of clubs like those for playing hui -- where record keeping is often nonexistent and members have to rely on mutual trust -- can make them a tough sell for a savvy consumer. Still, in a world where financial innovation is supposed to move from Manhattan to Malawi, and not the other way around, economists say the kind of social support savers get in groups like these could go a long way toward helping Westerners.
Around the turn of the millennium, a group of academics and financial experts tried to figure out just how it was that two-fifths of the world's population could get by on $2 a day. The group conducted a survey with almost 300 impoverished households in Bangladesh, South Africa and India, and asked them about virtually every financial transaction for a year. Their shocking conclusion: Almost every family had incorporated some strategy for saving. The financial diaries revealed that these very poor people led very rich financial lives, frequently borrowing from and lending to friends, family, employers, customers, landlords and shopkeepers. Savings clubs offered a relatively formalized way of doing this; the researchers found variations on the clubs in all three countries. And the poor who used the clubs tended to save more than those who didn't, says Collins, a coauthor of the book that emerged from the project, Portfolios of the Poor.
And saving doesn't just provide a cushion for hard times or retirement. Some researchers have found that it can lead to increased productivity as well. When farmers in Malawi were given "commitment savings accounts" to hold funds that could not be touched until a certain date, they actually poured 26 percent more money into their farms, increasing sales by 22 percent, according to a study by the International Finance Corp.
These days, more of these nations have Western-style banking systems. But many people stay loyal to their savings clubs; indeed, many Asian and African immigrants have started clubs after settling in the U.S. And in Vietnam, many people purposely choose the hui over a bank, or play hui in addition to having a bank account. (While the strategies for playing can vary widely, in short, those who hold out the longest before claiming a pot will save the most -- earning interest from fellow participants each month.) Nguyen Xuyen, a housekeeper at a Ho Chi Minh City apartment complex, for instance, earns only $125 a month, but she says she manages to save nearly $50 of it through her hui. Virtually all of her savings goes to pay for tuition for an expensive school for her fourth-grade daughter. Why not just leave extra cash at home? It's a matter of self-discipline, she explains: "If it's in your house, you just tend to spend it." Savings clubs suggest that successful saving is less about willpower or formal budgeting than "mechanisms that help us save," says Collins.
Those mechanisms may not involve a brick-and-mortar bank, but they still come at a cost. Not all clubs loan money at interest, for example, but when they do, it can be high. Consider the typical Vietnamese hui session: Those bids that people are scribbling represent the amount of interest they're willing to pay to win the pot. Early on in a cycle, when there are more bidders, the winners are likely to have to bid higher -- and wind up effectively paying 25 percent interest to the other group members on their take-home stake. In many hui, the organizer, or "master," also takes 10 percent of each pot -- a fee that any mutual fund manager would envy. And a few masters have taken advantage of their role as custodian of the pooled money to steal it; in the late 1980s, one leader of a hui-like club in Los Angeles's Korean community was alleged to have run off with as much as $3 million.
Still, savings-club members say they like the mutual commitment, and economists say that this kind of social support -- or its flip side, peer pressure -- is a great way to get consumers to do things they should do but don't always want to do. In the U.S. this principle lies behind the success of Weight Watchers, with its group weigh-ins, and Alcoholics Anonymous, with its group confessions. But it's not a principle that most of us apply to our money: Saving is a private matter, and one that gets neglected. The consequences of our spending are firmly in the public view: a spacious home, a luxury car with the name of the kids' fancy school plastered on the bumper. But the consequences of our failure to save -- a loan rejection, an uncertain retirement, letters from a debt collector -- are much more discreet. This behind-closed-doors effect lets many people talk a good game about their financial responsibilities, while shirking them in practice, says Bob Pozen, a senior lecturer at Harvard Business School: "People say they want to save, but they don't."
To counter the effects of the privacy ethos, behavioral economists have encouraged employers to "nudge" us into automatic savings or investment plans, hoping that inertia will take over. But it's easy to nudge right back. A consumer can easily ask her bank to push $1,000 into her IRA each month. But thanks to the Internet, she can just as easily reverse that decision -- 24 hours a day. Indeed, one recent study by consulting group Aon Hewitt showed that the widespread adoption of auto enrollment in 401(k) plans has coincided with a drop-off in how much of their income account holders save.
Some years back, San Francisco-based financial entrepreneur Chris Larsen was chatting with his wife, Lyna Lam, about how to combine lending with the new trend of social media. Lam, who is Vietnamese-American, described the hui, and Larsen had a lightbulb moment. The result was Prosper, an organization through which individuals borrow from each other -- often from multiple others -- without a bank's intervention. One of the biggest of the so-called peer-to-peer lending organizations, it has funded some $250 million worth of loans in the past six years. Most Prosper borrowers aim to pay off high-interest credit cards with Prosper's lower-interest fixed-term loans; right now, according to the company, the interest on the average Prosper loan is about three percentage points lower than that on the average credit card balance. But Larsen also thinks the company channels the community peer pressure aspect of the hui: "Just the fact that a person knows these are regular people lending to me [should spur the borrower] to go the extra mile." Overall, Prosper borrowers default at about the same rate as traditional-bank customers, but Larsen says that when a borrower's friend publicly vouches for him and personally lends even a small fraction of the loan, the borrower is 20 to 40 percent less likely to default.
Other organizations enlist friends and family to hold people accountable for reaching their financial goals. At the website StickK, those who sign up specify their goal and their timeline; they can then designate a person or a charity they must pay if they fail to reach the goal and choose online supporters who are notified of their progress and can send encouraging messages. The site was conceived by Dean Karlan, a Yale economics professor who has studied commitment contracts for savings and quitting smoking in the Philippines. Karlan calls StickK a "more formalized, Web-based manifestation" of a savings club.
Still, relying on peers can be a double-edged sword. If one or two members playing the hui get too cash-strapped to keep contributing to the fund, the whole enterprise can fall apart. Not that that deters savers. In a coffee shop in Da Nang, a group of middle-aged friends have been meeting for years to put in their bids for the month. "We just hang out, or we meet to decide who to invite to our new hui cycle," says accountant Tran Thi Yen, 45. Tran was asked what would happen if a hui member, due to circumstance, couldn't pay their monthly contribution. She acts as if she's never considered the possibility. "Cheat?" she responds. "You can't cheat. There's karma in everything."—Additional reporting by Chi Huyen Mai and Kate Poole.