Everyone accumulates something. As a rule, today it is money. The people call it "put off to a rainy day." We can keep cash at home under the mattress, and we can put them on deposit in the bank. In any case, if the salary allows, I don’t want to spend any part of it. In theory, this is called "marginal propensity to save." It was first investigated by J. M. Keynes in his works. We will try to figure out how this indicator will help us today in a crisis.
Psychological addiction
Let’s digress a bit from the theory and reflect on why a person is inclined toward savings. In order to be able to accumulate something, two conditions must be fulfilled: the first - all priority needs are met, the second - the amount of income allows you to save a certain amount.
Concepts such as consumption and savings are very related. They do not mean the same thing, but when studying the tendency to accumulate, you need to understand that they are very closely dependent on each other.
As early as the beginning of the 20th century, at the dawn of the birth of economic theory, the need arose to study the relationship between consumption and saving. Keynes, of course, became the first person to take up this matter. His theory is called the "Basic Psychological Law." And this is what he says.
First, people's savings depend on income. A certain percentage, say 5% of income, a person is able to postpone for the future. If income grows, this percentage will change insignificantly. It would seem a paradox. But here human psychology comes into force. The more we get, the more we spend. And the savings are no longer a larger amount. And if growth in consumption grows in proportion to income, then growth in savings will creep very, very slowly.
Evidence
There is very simple evidence to claim that consumption grows as income rises. Take, for example, a family with an income of 6, 000 rubles. They save 2% of the amount, and all other money goes to various expenses. What can I afford with this money? Pay utility bills, buy a minimum set of products, and probably all.
Family income begins to grow. Already the total contribution is 10, 000 rubles. Now you can buy more meat, go to a movie once and allow yourself to buy a new dress. But the amount set aside for savings will still remain the same. Because first of all, a person will satisfy his needs, and only then think about the value of accumulations.
Factors Affecting Changes in Consumption and Savings
The increase or decrease in consumption and savings depends not only on wage growth. In the economic environment, there are many other indicators that will somehow change consumer ability. The marginal propensity for saving also depends on these factors.
- Inflation. Rising inflation is usually much higher than salary indexation. As a rule, prices rise monthly, while family incomes rise at most once a year. Therefore, the consumer has to spend a large amount on purchases, while there is no longer any money to save.
- Tax increase. An increase in deductions leads to a proportional decrease in any expenses, and inclination to accumulate as well.
- Price increase. This factor will significantly affect those households with a low income level. Those who receive high salaries will save as much.
- Growth in social insurance fees. This is a very interesting factor. Most often, a tendency to save occurs when a person feels his insecurity on the part of the state. Money is needed in case of illness, sudden death, etc. If all this is provided by the insurance fund, then the need for separate savings will disappear. Therefore, with the increase in the increase in social contributions, the propensity for saving falls.
- Growth of offers in the market. This is a purely marketing factor. Usually, hype is observed for drugs during periods of sharp emergence of epidemics, pandemics, etc. With an increase in consumption, savings decrease.
- Revenue growth. As already discussed, with an increase in the amount of funds, consumption and savings tend to increase.
Theory
In the economic environment, it is customary to understand savings as a certain amount of money set aside from future income and not currently consumed. The tendency to accumulate can be medium and marginal.
The average inclination to save reflects what percentage of the total amount a person is ready to postpone for the future, and is displayed in the form of a formula:
APS = S / Y, where S is the part to be saved and Y is the sum of total income.
The marginal propensity to save (formula) shows changes in the savings part and in the amount of income. In other words, this indicator can tell how people’s desire to save or not earn their money will change if the amount of total income changes:
MPS = δS / δY.
With an increase in savings, costs are reduced. The economic value of this indicator at the country level means a desire to save money, which means there is the opportunity to invest it in real production. And this is investment, which, in turn, affects the overall well-being of the country.
Savings tendency chart
The magnitude of the marginal propensity to save, as we have already found, is highly dependent on consumption. The graph actually shows the dependence of one indicator on another. Consider the figure.
The ordinate axis is considered the size of income, and the abscissa axis is the size of accumulations. If, in theory, everyone expended an amount equal to income, then the dependence would be an ideal line located at an angle of 45 °. This line indicates the straight line AB. But in real life this does not happen.
The line, showing the propensity for savings, is indicated by a blue line in the figure, and it always deviates downward. The intersection O is the zero savings point. It means that the household spends all of its profits on its needs. Debt arises below this intersection and savings above. As you can see, the higher the income, the greater the marginal propensity to save.
Dependence of Savings on Age
In the process of our life, we make money unevenly. In one period of life they are not enough, in another there are surpluses. This trend can also be graphically depicted.
Let there be income on the vertical axis, and age on the horizontal axis. The curve shows that personal savings increase over the years, while in youth they are almost nonexistent. And indeed it is.
While a person is studying and is at the stage of searching for his profession, his income is small. Most of it is spent on training or personal needs. When he gets older and starts a family, he again begins to increase expenses, but, as a rule, stable earnings are already being established by this time and there is a need to save at least not a large amount on large purchases (car, home, children's education). A person receives his highest salary in adulthood, and then he begins to think about retirement about saving some of his money. It was during this period that the marginal propensity to save reaches its maximum, and then again declines.
What else affects the level of savings
There are certain factors that are not related to income, which also have a significant impact on a person's ability to save money for the future.
The first factor is expectation. If a crisis situation is observed in a country, and a person expects that prices will rise soon and service fees will increase, then he will stock up if possible now, at lower prices. Fear of empty shelves and huge expenses make people spend all the money here and now. But in the opposite situation, when in the future it is expected to lower prices or at least their constant level, a person will put off more than spend.
The second factor is consumer debt. We live in a world of loans. And now there is such a tendency that all the savings of the population simply turn into payment for a good or service in future periods. The average salary level is not enough to postpone anything for a major purchase. You can save 10 years for a car, but you can take it on credit and then pay for it for 10 years. Thus, our desire and ability to accumulate something are turning into a powerful tool of the economy - credit.
Savings tendency in macroeconomics
The concept of savings is very important not only for individual households, but also for the country as a whole. The marginal propensity for saving shows whether the people within the state can ensure development and production growth. It would seem that a simple indicator can?
In fact, the higher its value, the more free money is in the hands of individuals and legal entities, which means they are potential investors. Investments are monetary investments in the sphere of production, and at the same time a powerful tool to influence the development of the country. The more money is invested in innovation, technological innovations, etc., the higher are the indicators of economic growth.
