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Savings - How Is Savings Measured?, Tax Incentives For Savings, Are People Saving Enough To Retire?

money individual economy save

Savings, from the perspective of the individual, comprises money set aside for future use. Savings, from the perspective of the economy, includes all of the money set aside by all individuals, employers, governments, and other groups. Savings are important to the individual because they enable people to make purchases in the future and to be prepared for unforeseen financial needs. Savings are important to the economy because they allow investment to occur: one person or organization uses the savings of others to finance the making of a movie, to construct a home or building, or for other uses. If a person did not save, then he or she would not be able to borrow money to purchase a home.

For the individual, money to be saved may be placed in a piggy bank; put under a mattress; placed in a savings account or a certificate of deposit at a bank or savings and loan; or invested in a U.S. Savings Bond, a home, a stock or a bond, or some other asset that can later be sold or cashed in. When savings are put in a piggy bank or under a mattress the money is not available for others to use, and is therefore not helpful to the economy, even though it will be available for the individual to use. When savings are deposited in a bank account, the depositor is normally paid for use of the money in the form of interest. Generally, an individual can assume that he or she will get back the money deposited plus the interest income. This money is then loaned to someone else who is willing to pay even higher interest to the intermediary, such as a bank. When savings are invested, an individual generally hopes to earn more than would be provided by an interest payment from a savings account, but has the potential of earning nothing, or of actually losing the money that was invested. This is what happens if an individual invests in a share of stock valued at $100, and then has to sell it at $50. This can also happen with a home or any other investment.

When viewed from the individual perspective, savings are described as being at the micro level—that is, the primary impact is on the individual. Savings from the perspective of the economy, are described as being at the macro level— that is, the cumulative effect of what everyone does is considered. At the micro level, for example, those who have savings may feel secure; but if many individuals do not have savings, then there may be no macro savings in the economy.

The economy needs savings so that the money can be borrowed by others, allowing investment and growth. Individuals save so that they can spend in the future without having to borrow as much, or any, money from others. A child may save to purchase a bike; a young adult may save for a first car; and a newly married couple may save for a first home. All workers save so that they can someday stop working and still have money to live on.

Optimization Selection and Compensation - Basic Assumptions Underlying The Soc Model, The Model Of Selection, Optimization, And Compensation [next] [back] Sarcopenia - Prevalence, Structural And Functional Relationships, Etiology, Treatment Of Sarcopenia

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