also savings

The excess of income over consumption. This is a way of acquiring assets; for the economy as a whole it is the only way, since while individuals may gain or lose assets through inheritance or gambling, these cancel out on aggregation. The average propensity to save is the ratio of savings to income; the marginal propensity to save is the proportion of any addition to income that is saved. The interest-elasticity of saving measures the proportional response of saving to changes in interest rates.

Saving and savings are words which have caused great confusion in economics, as they are used to cover a number of different, though related, concepts, concerned with acquiring assets and ways of holding them. Saving is a flow; savings refers to stocks of assets and ways of holding them. ‘Life savings’ are a stock of assets built up by past saving. ‘Saving up’ for things means acquiring assets temporarily, with the intention of spending them at some time in the future. ‘Small savings’ are the assets of people who are assumed not to have many. National Savings are UK government securities with their income and capital value guaranteed by the state; the amount any individual can hold is rationed. ‘Savings banks’, for example the Trustee Savings Bank (UK), are banks specializing, at least initially, in handling small savings. While saving and savings are related, they do not precisely correspond. ‘Contractual saving’ means payments such as mortgage repayments or pension contributions which are fixed for some period ahead by contract. A person's contractual saving may constitute net saving, but not if it is financed by running down other assets or by borrowing. Conversely, while savings must be held in some form of asset, people can and do save without committing themselves to hold assets of any particular type.

Savings is contrasted with investment, the creation of real assets. Savings and investment for the economy as a whole must ex post be equal (on consistent definitions). They are not, however, necessarily equal either ex post or ex ante for any particular individual, firm, or government. The IS curve curve in macroeconomics shows the combinations of income levels and interest rates at which aggregate ex ante savings and investment are equal.

See also:

contractual savings, optimum savings, and planned savings

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