CONCEPT OF SAVINGS

CONCEPT OF SAVINGS. Definition of savings: Savings may simply be defined as that part of income which is not spent. In other words, saving refer to all or part of income which are not spent immediately but reserved for future purposes.. as the words sounds, keeping a part of one’s income in bank or financial houses for use at other times, this act of keeping a part of our earnings as savings for later use is called the concept of saving

Money which is saved constitutes a withdrawal from the circular flow of income. It can only come back to the circular flow of income through investment like every aspect of income flow, there are also different types of saving, these are as follows

Types of savings

1. Personal savings: This refers to the (6) type of savings kept by an individual for personal reasons.
2. Corporate saving: This refers to the type of savings kept by companies and other business organizations. They embark on savings if profits are high, when taxation is low or for other critical reasons.
3. Government savings: This refers to the type of savings kept by the government of a country. Government can save through budget surplus and many other ways.

            FACTORS THAT DETERMINE PERSONAL SAVINGS

1. Rate of interest: A higher rate of interest will encourage people to save.
   1. Political stability: People are more likely to save when there is a political stability. But three is little or no saving in times of wars or inter-tribal crises.
   2. Size of income: As the income of a person increases, his ability to save equally increases. In other words, the higher the income, the higher the tendency to save while the lower the income, the lower the tendency to save.
   3. Presence of financial institutions: People are more likely to save if financial institutions like saving banks and other financial institutions are available.
   4. Sense of responsibility: People may decide to save for one or more major reasons based on their income. A person with a high income who decided to save has a high sense of responsibility while one who refuses to save has a poor sense of responsibility.
   5. Government policy: Government can influence people’s attitude to saving in several  ways. Personal saving can be encouraged through the rate of interest and income tax concessions.

REASONS FOR SAVINGS

1. Capital formation: People may decide to save in order to raise capital, which can be used to set up a business outfit.
   1. For unforeseen contingencies: People may also save in order to meet unforeseen and unexpected contingencies such as accommodation problems, retirement, sickness and retrenchment.
      1. Acquisition of wealth: People also to enable them to acquire certain assets.
      2. Accumulation of wealth: People do embark on savings in order to gather to accumulate wealth.
      3. Provision for future purposes: Some people save deliberately for future purposes, e.g old age and education of children.
      4. Acquisition of social status: Some people embark on savings in order to be wealthy, which can boost their social status in the society.

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