What is Savings?

What Does Savings Mean

We explain what savings is and what types of savings exist. Also, why is it important and what are its differences from investing.

Refers to the percentage of income or income that is not used for consumption.

What is savings?

Saving is the practice of setting aside a portion of the monthly income of a household, an organization or an individual , in order to accumulate it over time and then use it for other purposes, which can be recreational expenses, important payments and eventual , or solve an economic emergency.

Saving is a common practice and also an important concept in economic theory, understood as the percentage of income or income that is not used for consumption . That is why there are different forms of saving and financial instruments have even been designed whose specific role is to allow or increase the desired savings.

Normally, savings are made up of the surplus of money or resources earned during the production process , whether national, business, family or personal. However, the excessive desire to save, sacrificing important or necessary expenses that could well be covered, are linked to greed and are culturally frowned upon.

Its origins as a practice are closely linked to the origin of civilization, prior to the existence of money, so that goods from the harvest were actually preserved for later consumption. The first savings and loan society emerged during the 15th century , as part of the new order brought about by the Bourgeois Revolutions, and was the forerunner of today's banks . Saving and capital accumulation was key in the constitution of early capitalism as an economic system.

See also: Finance

Types of savings

Two forms of saving are normally distinguished: public and private.

  • Public savings. It is the one carried out by the State , based on the income from international trade , from taxes on its citizens or from other economic activities. When the State saves resources it is because it has covered its basic needs for operation and assistance (public spending), and there is still a surplus or excess of resources. Otherwise, we speak of a deficit .
  • Private savings. It is the one carried out by private organizations of different types, that is, those that do not belong to the public sphere. Broadly speaking, it is carried out by families , non-profit institutions and companies . This saving occurs when the basic needs of the company or family are fully covered and there is a surplus of available resources.

Importance of saving

Saving encourages a more sensible use of available resources.

Saving is a vital economic planning activity for the survival of a productive system over time , since it entails the possibility that part of the resources produced are not consumed or wasted, but are strategically safeguarded for the future.

For this reason, saving is encouraged at all levels, since it implies a more sensible and far-sighted use of available resources , which serves to face future needs or which can be invested in new projects.

What is investment?

In economic terms, investment is a way of saving and postponing consumption, which consists of exchanging the additional resources available for goods whose value does not decrease or even increase over time, such as property, foreign currency, business shares or various instruments. financial investment, such as bank time limits, for example.

The logic of investment dictates that money can be exchanged for goods that can then be sold again , or that can even generate dividends, thus recovering the investment and multiplying the money saved. It is a usual procedure in countries with high inflation rates or with currencies in the process of devaluation, since the goods are not affected by the loss of purchasing value that does affect money.

Likewise, it is a common form among companies and people with high purchasing power as a form of savings, since the money invested in investment goods cannot be consumed on a daily basis or in superfluous expenses.

Follow in: Investment

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