Savings can be defined as the positive difference between income and expenses or consumption.
We can speak of:
- Public savings, which are those made by the public sector to face extraordinary or unforeseen expenses in the future.
- Private saving by companies and families, which generally also has the purpose of facing possible future expenses without the need to resort to indebtedness or doing so to a lesser extent than would otherwise be necessary.
In addition to the amount of disposable income an individual or company has, government economic policies clearly influence private savings. An increase in interest rates encourages saving, while a decrease has the opposite effect. Another way in which governments influence savings is through fiscal policy, which can either encourage or discourage savings.
Saving is the flip side of consumption and each has its advantages and disadvantages. As we have seen, saving makes it possible to face future contingencies without exceeding the appropriate limits of indebtedness, and in the case of public saving it is necessary to cover pensions and other social welfare systems in a crisis situation. On the other hand, consumption is necessary because without it economic activity slows down and may even come to a standstill.