When we talk about savings, all that comes to our mind is hoarding some portion of the earning either at home or in a savings account. Savings are often viewed as cash savings in an account that generates whatever minimal interest. Savings also take the form of investments. Though investing is funding a business or creation of something that has a value, it is an extended form of saving. Since savings from a part of the investments and also provides for future spending, it definitely stimulates economic growth.
The relationship between Savings and Economic Growth
Savings influence the economy both directly and indirectly.
- Savings essentially mean that we are accumulating money with a definite plan for it in future. We save to provide for our needs in future. So current savings is what transforms into future spending. Spending percentages are what determines the level of economic activity.
- When we put our savings in the bank account, they are not just put away is safe lockers rather the money is in continuous circulation. What the banks take in form of savings is in turn distributed as loans to the borrowers. So this saving habit is what keeps these financial institutions going.
- The loans given to the borrowers might be for spending or investing in capital assets or to start off new businesses. This is definitely going to cause a rise in the economic activity.
- Few of the European countries who boast of a save percentage of more than 13% usually have a surplus budget. This goes to show that Savings is indeed the way to economic prosperity.
- The Government also encourages savings by way of issuing Government bonds and thus they mobilize the required capital for various purposes.
- Savings in form of investing activities also lead to an increase in stock market activity. Stock markets are the indicators of economic growth and hence savings influence economic growth indirectly.
- Savings is that part of the earnings which is not spent which means the individual has been able to keep some money after spending on his basics. He has a personal surplus budget. This goes to show that the economy is indeed in a flourishing state.
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