Introduction
National saving is the total amount of saving done by households, individuals, businesses and even the government agencies. National saving is important to a country in that it lays the strong pillars of the national economy as well as the financial security of the people. This is because national saving guarantees the ability of the nation and the households to invest in more economic improving activities. This is an important step in cushioning the individuals and even the nation from the prevalence of inflation or future drops in economic prowess.
It is also considered as the part of a nation’s income that cannot or is not utilized for private and public consumption. This income is stored away either through investment or even on interest accruing accounts. This means that the individual can decide to save the money into his or her account and use it at a later stage or during an emergency in the future. The saving culture is contributed to by a number of factors that need to be considered for the sake of analysis.
Investment is important in that it ensures that the saved amount of money contributes to the daily activities of the economy as well as contribute to the creation of profits. Investment is a method of the nation or the individual to save money by giving more people an obligation to work to improve the amount of money as well as earn wages from their activities. It means that individuals work hand in hand to improve their living standards through the investment. The investment can be a business in service or even product manufacturing.
Saving depends on the amount of income that an individual or a nation gets. This means that in order to be able to save, an individual or the nation has to gain in a consistent amount in order to put aside some money that will be utilized in the future or during emergencies. The saving done by a nation or an individual depends on the following:
Disposable Income – this is the amount of income in which an individual or the government is able spend or save without straining the daily operations. It means that the amount is above the sum required for expenditure. Therefore an individual can spend it the way they feel is fit. This amount can be structured to the saving purpose so that the individual can use in a future endeavor. The saving can also be done by active investment.
Consumption – it is affiliated to the total expenditure that is used on goods and services rendered, it also determines the culture of saving and even the culture of investment. Consumption is the ability of an individual to spend money for the purpose of expenditure on food, medical needs or even luxury. This is a determinant of saving because it directs the next step that an individual or national income goes. This means that when consumption is checked, then saving can happen in a way that a certain amount of money is put aside for the purpose of saving. Through budget allocation, an individual is able to cut away some funds for the purpose of saving.
Saving and the tendency to invest increases the nation’s stock in capital goods which are to be used for the future. This means that money is accrued in terms of funds and goods. Saving through investment increases the number of goods and economic activities in a nation. Investment brings about the setting up of companies and production lines. This is through buying of plant materials, software and even the plant premises. The amount used is the capital that comes from saving. It means that saving through this method is an active investment option.
Benefits and Purpose of National Saving
The purpose of saving is to guarantee the future of an individual, the business or even the nation. It means that saving is important in determining the resources that are used in investment, the economy of the country and the living standards of the individuals in a country. The importance of saving guarantees the national resources that can be used to invest locally or even abroad. This means that in order to contribute to the ability of a nation to invest, saving should be encouraged.
Amounts that are saved can be used to bring investment through active projects that are engaged with productivity.
Comparability and measuring
The national saving rate or amount is measured on the basis of net or gross saving. The basic data used in measuring saving is the income and the consumption rate. Through the outcome of these two important components, the amount or rate of saving can be determined. The amount of income of a nation or an individual can be used to determine the saving rate and amount. This is because the saving culture is enhanced by the ability to gain income and the amount of income gained.
The ability of an individual to earn an income gives them a direct option to save. Saving is a behavior that has to be encouraged through either discipline or even the involvement of the government or a collective idea of a group of people. The income earned by the individual gives the amount of money to be saved and this can be any amount from the income. This is where consumption and expenditure determines the amount of funds to be saved. It means that the more the income amount, is the higher the chances of an individual to save.
High incomes also determines the amount of saving that an individual does. The rate of income earning and the amount are important in saving in that they encourage or discourage the saving habit. The rate of earning determines how soon or how often an individual will be involved in saving. It means that the consistency of the income gives an individual the ability to save regularly while slow rate of income will give the individual a slow saving rate. This is also how the amount of income affects the saving amounts of an individual.
The factors that affect national saving to individuals is differences observed in pension systems, the differences observed in social services that are availed by the government, the prevalence of taxes and the methods of taxation, and delineation of the household sector. The pension is subdivided into public pension scheme provided by the government which is mandatory, occupational pension plan and individual pension plan.
The pension system is a way that the government uses to ensure that individuals can save and have some amount of money in which they can access at a later stage in life. The pension system is important in that it guarantees the financial situation of an individual especially those working for the government. This is the way of the government to shield its employees from financial atrocities at a later stage and also ensure that they have funds to run investments for the good of the nation economy.
The pension system is therefore provided by the government which is the public pension scheme, or a group of employees can come up together and decide to save collectively which is known as collective occupational scheme which can be encouraged by an employer or an individual can decide to have his or her own saving plan where he or she encourages an employer to put away some of his or her money in order to avail later, this is known as the individual pension plan.
Social services provided by the government also determine the ability of national saving. The social services include education and health services which have to be provided by the government. These services are provided by the government in order to guarantee and regulate their quality. This is important in ensuring that the citizens get the best value of education and health in the country. There are regulations that are set in order to oversee the services provided. This way it is important to ensure that the services provided are of the highest quality in order to ensure that the residents save funds.
The ratio of taxes and methods of taxation determines the ability and amount of individuals to save. This means that individual saving behavior is controlled by the amount of taxes and the rate at which taxes apply. The taxes applied on an individual’s income directly influences the ability of the individual to participate in saving. It can be a positive or negative influence. Therefore the taxes have to be checked in order to enable the culture of saving for individuals.
The more the frequency of taxes on an individual’s income lowers the amount and rate of the individual to save. It means that taxes are bound to take up an amount of income which may affect the individual’s budgetary allocation. The amount of taxes reduces the disposable income which is ideal for saving purpose. Therefore taxes directly influence the saving behavior of a nation.
References
Finlay, R., & Price, F. (2014). Household Saving in Australia. Sydney: Reserve Bank of Australia.
GAO. (2001). National Saving: Answers to Key Questions. Washington: United States General Accounting Office.
Lusardi, A. (2008). Household Saving behavior: The Role of Financial Literacy, Information, and Financial Education Programs. Massachusetts: National Bureau of Economic Research.
OECD. (2009). Household Saving Rate. Retrieved from OECDiLibrary: http://www.oecd-ilibrary.org/sites/9789264067981-en/02/05/index.html;jsessionid=tk4swvhxg4e1.x-oecd-live-03?itemId=/content/chapter/9789264075108-10-en&_csp_=334d58e261bd2a29e227b29622ca5b0a
Rocher, S., & Stierle, H. M. (2015). Household saving rates in the EU:Why do they differ so much? European Commission.
