Are We Saving Enough?

Savings

        Savings is the portion of income not spent on current expenditures. Because a person does not know what will happen in the future, money should be saved to pay for unexpected events or emergencies. Without savings, unexpected events can become large financial burdens. Savings helps an individual or family become financially secure.

Personal savings serves two primary functions. First, savings provide the economic security of a safety net. By transferring resources from the present to the future via savings, individuals are prepared to face unexpected and irregular financial circumstances. Second, savings leads to accumulation of wealth that enables individuals to improve their living standard and to respond to new opportunities (Gokhale, 2000).

People who have low income are less interested to save for long-term purposes as they have difficulties to spend as well as saving because of the income volatility. Moreover, it shows that savings is negative when an individual is young and vice versa when he or she is old (Chang & Rosenzweig, 2001).

        But if saving were simple and easy, then few people would lack financial resources. To save means to use less resources in the present, so, even for the non-poor, saving is difficult. As a matter of course, the sacrifice is greater for the poor because they have fewer resources relative to subsistence requirements. In addition, the poor lack access to (or awareness of) some public policy mechanisms that, for the non-poor, decrease the current cost of living. In the end, scarce resources and restricted access may combine to remove saving from the world view of the poor (Schreiner, 2001).

        Parenting effects on savings behaviour explains about 30% of the variation in savings rates for individuals around age 30, but decays significantly and attains zero starting around age 40, i.e., parenting does not have a lifelong impact on children’s savings propensities (Cronqvist and Siegel, 2015). The marginal utility of income depends on personality traits. Given this, it is not surprising that outcomes resulting from savings and consumption decisions can be linked to personality (Boyce and Wood, 2011).