Japanese reluctance to borrow in contrast to America's trend

Editor's note: Growing debt has long been a concern in the United States, from individuals buying on credit to Washington budgets. But many economists are now warning that runaway spending and borrowing have the nation on track toward a major economic crash. The final installment of a three-part series, this piece examines the attitude toward debt in Japan, the world's second-largest economy.

KAMAKURA, Japan -- At a forest shrine lined with incense-burning urns, Japanese pilgrims enter a small cave where they stoop to wash coins and bills in trickling spring water. Cleanse your money here, the tradition goes, and it will multiply.

The ritual dates back perhaps 700 years, and it says something about the Japanese view of money: an attitude far different from that of many Americans. Cash -- cold, hard currency -- is a precious, treasured commodity here, something to be treated with reverence.

"I pay for everything in cash," says Shu Nagaye, a 23-year-old student, as he meticulously scrubs both his paper money and coins -- 11,720 yen, worth roughly $105 -- all placed carefully in a woven basket.

"When I don't have money, I control myself and don't buy anything."

Like most Japanese, Nagaye despises being in debt. And unlike most Americans, he assiduously avoids it at all costs.

Such cautious, almost fearful attitudes toward debt are common in Japan. While Americans pile up mortgages and credit card debt, Japanese are reluctant to borrow at all, creating the problem of economic stagnation. And while the United States sells U.S. Treasury bonds to cover its expenses, Japan, China and other nations buy them.

On a personal level, hoarding cash is so common among Japanese, from bills stuffed under mattresses to bars of gold in safes, there's a phrase to describe the practice -- "tansu yokin" or "savings stashed in a chest of drawers."

Import bag-makers like New York-based Coach Inc. have to design wallets and coin purses especially for Japanese, who like to carry large wads of cash. American billfolds need more room for credit cards, less for paper money and coins.

Hard habits to break

The Japanese government has tried to encourage business borrowing, and thus break a decadelong economic slowdown, by keeping interest rates at virtually zero for four years. But even though this policy prevents Japanese from earning much interest on their bank savings, relatively few have been lured into playing the stock market or buying up the equivalent of mutual funds.

The Bank of Japan says Japanese have $13 trillion in assets -- 55 percent of it in cash and savings, and only 9 percent in stocks. Of Americans' $36.5 trillion assets, only 13 percent is in cash and savings, and 34 percent in stocks.

For decades, credit card companies have tried to woo Japanese with little luck.

The recent data leaks in the United States that exposed millions of cardholders to identity theft, including thousands of Japanese, have only intensified the deep distrust of credit.

Muneaki Fujii, a 49-year-old schoolteacher with a 25-year loan on his home, is in a borrowing minority -- just a third of Japanese households have mortgages. And even for Fujii, the loan is a rarity. "I don't buy things that I can't pay for in cash," he says. Nearly all American homeowners, by contrast, take out mortgages because of the tax breaks alone.

Japanese almost never use checks. They have their rent, utilities and other monthly bills automatically deducted from their bank accounts, and such transactions require no extra fees.

Some have proposed cultural explanations for the two nations' spending patterns. The "American dream" emphasizes entrepreneurialism, while the Japanese equivalent stresses stability and lifelong employment with a single company.

Others point to government policies. American tax law provides substantial breaks for home mortgage interest; Japanese policy does not, although there are some tax refunds for loans. Also, the Japanese government has focused its development efforts on big business, and major banks' rules are written so that small businesses and individuals have a hard time qualifying for loans.

The difference between Japanese and American spending habits is playing out on the national level as well.

While American trade and budget deficits have ballooned, Japan has been persistently tackling a trade surplus -- worried about a possible political backlash for taking away American jobs.

Meanwhile, Tokyo has been snatching up U.S. Treasuries, financing America's giant debt as individual Americans buy Japanese goods.