hi everybody saving is that part of disposable income that is not spent on goods and services in the economy and savings is a determinant of ad if savings increase in the economy it means by default there is going to be less consumption taking place in the economy in 80 will shift to the left remember there are only two things that an individual can do with income that they earn they can either spend it or save it so savings increase it means consumption is decreasing so savings is a determinant of A.D by affecting consumption the level
of consumption in the economy so what kind of factors can affect saving well the level of real disposable income of course that can affect saving um if incomes rise we don't spend all of our money right so if incomes rise yes consumption can increase but saving can increase too so the level of real disposable income can definitely affect the level of saving without income you can't save can you in developing countries this is a very big Point even in developed countries like that you okay you know the poor households save a very very very small
percent of their income most of it has to go in consumption activity so the level of real disposable income is a key determinant of saving interest rates higher interest rates will encourage more saving why because the rates of return on savings is going to increase if you save your money in a bank account an interest rates are quite High then you're going to get a nice rate of return on the money that you place in your saving account over a period of a year which is a big incentive for you to save and therefore not
to spend in the economy instead so high interest rates increase the marginal propensity to save and therefore the level of saving in the economy low interest rates will do the opposite I'm going to encourage more borrowing and spending and less saving in the economy the level of consumer confidence if consumer confidence is very low in the economy because people fear a recession coming up they fear losing their jobs or they think that their incomes are going to take a cut then individuals are more likely to save money um in preparation for that so low consumer
confidence encourages more saving um and less consumer spending in the economy whereas if there is high consumer confidence that encourages more spending and less saving in the economy this point here number four is very important for developing countries the range and the trustworthiness of financial institutions in developing countries financial institutions like Banks simply don't exist in the kind of volume that they do in developed countries and often they are corrupt or non-trustworthy they might be unofficial which again reduces of course the incentive to save in them another key barrier is just education in developing countries
do individuals or families know about the benefits of saving about how a bank operates about what interest rates are maybe not and that could be a barrier to saving as well but all of these reasons a poor range of financial institutions corrupt Banks non-trustworthy Banks unreliable Banks unofficial Banks can all prevent saving taking place especially in developing countries you see this a lot tax incentives like Isis so the government policies basically to encourage more saving and I say is an individual saving account where you can have savings and earn Returns on savings which are tax-free
up to a certain threshold so basically this is a a way to save money to protect yourself from paying income tax or or capital gains taxes on the savings that you put in bank accounts so incentives like this can encourage more saving especially is now the the ISA tax allowances around fifteen and a half thousand pounds right now it's a very high tax allowance on savings that very much encourages savings and therefore can increase the level of saving in the economy the more that you have policies that encourage it an economist called Modigliani argue that
the age structure of the population has got a big role to play in the level of savings he argued that the middle aged individual is more likely to save their money for their children and for their own retirement whereas those who are younger so um you know between the ages of 15 and 30 in the economy more likely to spend their money and the pensioners so those who are aged above 60 years old are more likely to spend their money too whereas those who fit in between that Gap are more likely to save their money
so the middle aged population are likely to save their money so if you have a population where that is the majority of your population then likelihood is a savings are going to rise if you believe the thesis of modern griani so here are some of the key uh determinants of saving in the economy hope that makes sense I'll see you all in the next video
