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The use of profits or income by an individual, business or government for something else than expenditures (investment, for example) since the benefit derived from using them in the future is greater than using them now. saving is an action over time. Savings are the result of these actions at one particular point in time.

Savings are the difference that exists between available earnings (also known as disposable income) and spending (also known as expenditures) during a period of time. Typically the non-used income is saved to prepare for any surprise expenditures that may arise in the future or to prepare for a large amount of consumption in the future (known as deferred consumption). Savings = disposable income - expenditures In economics, savings are typically classified into two groups.

  •  Private savings are obtained by an individual, group (family) or business. For businesses, savings refer to profits (after dividends) not used for consumption purposes which are usually turned into investments

  •  Public savings are made by the government when its income (from taxes, public enterprises, investments, etc.) is greater than its expenditures (public school, hospitals, programmes, subsidies, general infrastructure, etc.). When income is higher than spending, the government has a surplus. When spending is higher than income, the government has a deficit
The idea of running a surplus or a deficit can be very politically and/or economically oriented and is the subject of an important field in economics. Real savings vs. Financial savings The decision to save leads to a choice among the many types of saving that are possible. For example, you can give your money to a bank for them to hold on to it and make it available to you when you wish. You can convert you money into a foreign currency that might maintain its value better than your currency.

You can convert your money into a commodity like a precious metal like gold, platinum or silver since their value can increase. You can simply decide not to buy something today, you can buy something less expensive than you normally would or you can find a deal that gives you more for less money. You can even put money under your mattress or in a coffee can at your house. Therefore, it is important to understand that financial saving only exists in the cases where that saving is intermediated in the financial system by acquiring financial assets like deposits, certificated, bonds, stocks, etc.

This means that real saving is all types of saving and/or differed consumption, including financial saving. In economies with highly developed financial systems, it is commonplace for a businesses’ level of financial saving to be very close to their level of real saving since they prefer to employ their profits in a productive way (not always just keeping cash on hand, however economic cycles and business models can change this necessity or desire). Both the public and private sector are always making decisions about their real and financial saving.

Both types of saving allow for the future consumption of goods or capital that stimulates productive investment and economic growth. Determinants of saving:

  • Inflation: the main enemy of saving. This is when, over a certain period of time, the general level of prices for goods and services rises while the purchasing power of consumers stays the same or decreases. Therefore, the higher the inflation is, the lower are the savings. This means that if you think prices will increase faster in the future than your purchasing power, it is not a good idea to save. However, if you think prices will remain the same or decrease compared to your purchasing power, it is a good idea to save. 

  • Salary: your remuneration in exchange for work. The higher your salary, the higher is your propensity to save

  • Income: when someone perceives that their income is going to decrease at some point in the future, they will have a great propensity to save until that point. The opposite may also be true for someone who believes there overall income is going to increase since they may be less worried about saving now.

  • Socio-economic factors: a country’s laws, religious aspects, the influence of a culture or peers, education, means, certainty vs. uncertainty, consumerism, etc.