Saving and Investing

6 Key excerpts on "Saving and Investing"

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  eBook - ePub

  Economics

  The Definitive Encyclopedia from Theory to Practice [4 volumes]

  • David A. Dieterle(Author)
  • 2017(Publication Date)
  • Greenwood

    (Publisher)

  S SAVING VERSUS INVESTING

  For centuries Saving and Investing money have offered different approaches to achieving financial security, but it was not until the late 19th and early 20th century that saving money in banks became widespread in many developed societies.

  Saving in the financial sense means depositing funds in an institution under terms that leave funds available upon request without fear of financial fluctuations impacting the amount at hand. In exchange for allowing the institutions, usually banks, to be custodian of the funds, the institutions promise and pay a regular interest rate of return on the funds deposited, allowing the depositor’s assets to grow over time.

  Traditional savings vehicles include savings accounts, checking accounts, and certificates of deposit (CDs). CDs involve investing for specified periods, after which the funds can be accessed. They traditionally pay a higher rate of interest than savings and checking accounts. The combination of a guaranteed interest rate and ready access to one’s money affords a sense of security and peace of mind. Technically, depositing funds in an institution for savings purposes is investing in that institution, yet one does so with some expectation of moderate growth via interest rate earnings.

  Savings funds afford security and ready access to funds. If one’s goal is to use the funds for a major purchase in the near future, it’s prudent to deposit the money at hand in a savings account. In the event of unexpected events that require funds, such as repairs to property not covered by insurance, medical expenses, and other such emergencies, funds saved in commercial institutions with retail offices can be readily accessed for use.

  In practice, investing involves a more speculative approach and more risk than a guaranteed interest rate. Investing means committing funds to a pursuit with the expectation that a profit will be earned by the project’s efforts, increasing the wealth of the investor. Individuals and institutions can and do invest widely, from commercial companies to real estate undertakings to intellectual proposals that evolve into inventions. Investing in a company is commonly done by receiving shares of stock in the firm in return for one’s money.

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  Personal Finance

  • George Callaghan, Ian Fribbance, Martin Higginson(Authors)
  • 2011(Publication Date)
  • Red Globe Press

    (Publisher)

  We’ll look at the importance of savings, why households save, and the different ways in which they can save. We will begin the chapter by defining some terms you are going to come across. First, we want to draw a distinction between the definitions of saving and savings. Saving refers to a flow of money in a particular time period – such as putting money into a building society account. By contrast, savings (note the plural) is the current value of the total accumulated sum of previous saving. Savings is therefore the value of the stock of such savings that a household has at a particular point in time. Saving is connected to savings because saving in any given time period will add to the accumulated stock of savings. Consequently, if I already have £100 in a building society account, that £100 is my savings, but if I put in an additional £25 a month into the account, I am saving £25 a month – after another two months, my savings will have increased to £150 (plus any interest earned). In Sections 2 and 3, we use the terms ‘saving’ and ‘savings’ in the same way as the UK Government’ s official definitions, to encompass putting money into both ‘savings products’, such as deposit accounts, and ‘investment products’, such as shares, government bonds, and investment funds. However, you will notice that this chapter is called ‘Savings and investments’. This is because in personal finance a distinction is often made between the two. Sometimes, the distinction isn’ t too clear, but we shall explore the difference between them in Sections 4 and 5. We will then look at how the different savings and investment products can be analysed in Section 6. Section 7 applies the financial planning model to decisions about savings and investments. In Section 8, we step back to view savings and investment from a broader social perspective and look at how government policies may address the issues raised.

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  A Violent World

  Modern Threats to Economic Stability

  • Jean-Hervé Lorenzi, Mickaël Berrebi(Authors)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  for risk-taking. It is in this respect that useful savings risks becoming a rare resource. The future relationship between savings and investment will be proof of this. Lendable funds need to be provided with a balanced rate of interest on the savings and investment market. Behind the apparent ease there lies a knottier problem, one that is more delicate 6 Savings, the Ultimate Rare Resource 126 A Violent World and more fundamental to the political economy. This balance, that is so impossible for some to find but obvious to others, has resulted in a massive intellectual battle between economists that has raged for two centuries. The battle rages between the Keynesians and the Neoclassicists. The equality between the two terms Investment vs Savings represents the results of a whole process that assumes that the economic stakeholders will all decide to save and invest. By doing so, they determine new levels of activity in the economy. Yet each agrees to state today that savings and investment are the products of separate developments, linked to its own taxation, the age of those involved and the macroeconomic pros- pects. The eventual balance depends largely on the overall state of the world economy. The balance represents the strongest constraint with which all economies are confronted and this will continue to be the case in any new configuration. This means that the coming balance will be a complete break with what happened in previous decades. We shall therefore move from abundant savings to rarer savings, from limited investment to a massive need for investment. The world’s macroeconomic trajectory has always been determined by the process that allows these two quantities, the amount of investment and the amount of savings, to come together ex-post, in which the level of balance is decisive for knowing whether or not the world can continue to grow significantly.

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  The Evolution of Creditary Structures and Controls

  • G. Gardiner(Author)
  • 2006(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Throughout Keynes’ book, The Treatise on Money, he appears to be under the impression that savings always finances investment. Presumably he means by investment what the Office for National 174 12 Savings, Investment and Debt Saving is a very fine thing, especially if your parents have done it for you. SIR WINSTON CHURCHILL (attributed) G.W. Gardiner, The Evolution of Creditary Structures and Controls © Geoffrey W. Gardiner 2006 Statistics much more sensibly calls fixed capital formation. Moreover he also appears to believe that savings have to precede investment. It is this mistake which makes a very large part of his Treatise on Money wrong and misleading. An act of true investment can precede an act of true saving in the same way that borrowing must precede an increase in money deposits. A further principle is that an attempt to save which is not matched by some act of real capital formation must end up financing some form of consumer expenditure; that is a logical necessity. Keynes got himself deeply confused over the definition of saving. On no other aspect of economics does he seem to have failed so completely in his analysis. Five years later, in Chapter Six of The General Theory of Employment Interest and Money , he has another go at clarification and writes, So far as I know, everyone is agreed that saving means the excess of income over expenditure on consumption. But everyone does not agree. For the ordinary citizen saving is the failure to exercise a right to consume to the limit of one’s current income, and the acquisition with the unspent income of financial assets. As all financial assets are other peoples’ debts, whatever the citizen has not spent is lent to someone else for whatever purchase that person prefers. Keynes’ definition of saving is the aggregate expenditure of the whole community on non-consumption goods – whatever they may be.

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  The Economics of Adjustment and Growth

  Second Edition

  • Pierre-Richard Agénor, Pierre-Richard Agénor(Authors)
  • 2004(Publication Date)
  • Harvard University Press

    (Publisher)

  Chapter 2 Consumption, Saving, and Investment If people regarded future benefits as equally desirable with similar benefits at the present time, they would probably endeavour to distribute their pleasures and other satisfactions evenly throughout their lives. They would therefore generally be willing to give up a present pleasure for the sake of an equal pleasure in the future, provided they could be certain of having it. But in fact human nature is so constituted that in estimating the “present value” of a future benefit most people generally make a second deduction from its future value, in the form of what we may call a “discount,” that increases with the period for which the benefit is deferred. One will reckon a distant benefit at nearly the same value which it would have for him if it were present; while another who has less power of realizing the future, less patience and self-control, will care comparatively little for any benefit that is not near at hand. Alfred Marshall, Principles of Economics , Book 3, Chapter 5, 8th ed., 1920. Consumption expenditure accounts for a large fraction of private spend-ing in developing countries; understanding its determinants is thus important for short-and long-run economic analysis. The fraction of income that is not spent, domestic saving, plays an essential role as well: it continues to finance a large share of domestic investment in most developing countries. As discussed in Chapter 10, saving and investment rates are strongly correlated over time and across countries with rates of economic growth. From a policy perspec-tive, understanding the patterns and determinants of consumption, saving, and investment may thus be a crucial step in designing programs aimed at raising standards of living. Figure 2.1 shows the evolution of domestic saving and investment rates around the world during the period 1976-2001. The data suggest that gross domestic saving rates in East Asia have remained significantly higher than those 28

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  Removing Obstacles to Economic Growth

  • Michael L. Wachter, Susan M. Wachter, Michael L. Wachter, Susan M. Wachter(Authors)
  • 2016(Publication Date)
  • University of Pennsylvania Press Anniversary Collection

    (Publisher)

  2 An issue that has received insufficient attention in the literature is the great difficulty in measuring saving. For the most part, we have very little direct data regarding saving. Most authors determine sav-ing as the residual of somewhat erroneous income data and highly questionable consumption figures. This paper uses a different ap-proach. Saving is probably best thought of as the change in, or accu-mulation of wealth. That is, the amount a person, household, firm, or government has saved during a year is the increment in the net wealth of the person or institution. The most straightforward way, then, to measure saving is to compare two balance sheets (one at the beginning and one at the end of the period) of the entity under con-sideration. If both balance sheets are expressed in the same units (such as dollars of constant purchasing power), then saving will just equal the change in net worth. The problem with implementing this approach is that we have little wealth data for the U.S. Detailed cross-section household wealth data is extremely scarce and the distortions caused by inflation create many difficulties in computing real corporate balance sheets. The gov-Saving in the U.S. Economy 189 ernment sector is the worst in that no official attempt is made to construct balance sheets. The assets of governments, including de-fense equipment, social overhead capital, and large natural resource holdings, are particularly difficult to value. Attempts are being made, including an ambitious project currently directed by Michael Boskin at Stanford. The point that should be recognized, however, is that measuring saving, which is most fundamentally defined as the change in net worth, is at least as difficult as gauging net worth itself. There are at least two sets of national balance sheets available; those compiled by Raymond Goldsmith (1982) and those prepared by the Flow-of-Funds division of the Federal Reserve System (1983).

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