1. Income
• The most obvious requirement is the ability to save and this depends on the
level of income
• No one can save until the level of income is sufficient to cover what are
considered to be the necessities of life as income which is devoted to
consumption spending tends to fall.
• A person earning P825,00 per month might spend P660,00 of it on
consumer goods and services, whereas a person earning P1100,00 per month
might spend P825,00. a greater sum of money but a smaller proportion of
his or her income.
• What is true of the individual is also true, in this case, of society as a whole.
The rate of saving in rich countries is much higher than in poor countries.
2. The social attitude towards thrift which is old-fashioned, wise
and careful use of money, has a significant influence on the level
of saving.
Where thrift is regarded as a virtue, mole will be saved In
Victorian times, hard work and careful saving were regarded as
admirable personal characteristics, and they were important
contributors to the rapid industrial progress during that period.
Other communities place a higher value on leisure and
consumption and in such societies, the thrifty person [night be
despised and called a mean person. Where this is the case, the
level of savings will obviously be relatively low.
Social attitudes
3. In the developed countries, all kinds of institutions for the safe deposit of
savings are available.
Savings banks, commercial banks, insurance companies and building
societies are all widely known, easily accessible, and have the confidence of
the people.
By the prudent investment of the funds they obtain, they are able to offer
potential savers both security and income. This range of opportunities not
only stimulates savings, but it also ensures that most of the potential saving
is made available to borrowers.
In less developed countries, there are few such institutions and they are
neither widely known nor easily accessible.
These institutions do not enjoy the confidence of the majority of the people
who lack the knowledge and experience of institutional forms of saving.
The financial framework
4. Earlier on, we had said that savings, consumption and
investment are inter-related.
How is this possible? Saving will depend on how much a
person is earning and how much they are consuming.
If a household is consuming less it means it will save more,
that is, It will use the money left to make more money.
This is called investment. In this case the money is used to
increase production.
Financial Framework cont.
5. You may read more by clicking on the link
below Consumption, Savings and Investment
For further reading
