Reviewed by Sep 30, 2020| Updated on
The savings rate is a measure of the amount of money which an individual deducts from his/her disposable personal income to keep aside as a nest egg or for retirement, expressed as a percentage or ratio.
In economic terms, saving is a decision to forego some current consumption in favour of higher future consumption, so the savings rate represents the time preferences of an individual or community. The rate of savings always has to do with the marginal tendency to save.
The accrued cash can be kept as currency or bank deposits, or it can be placed into savings, such as a money market fund depending on different variables, such as the planned retirement time, or a personal retirement account made up of non-aggressive mutual funds, stocks, and bonds.
Anything affecting the desired rate of time can affect the rate of savings. Economic circumstances, social structures, and characteristics of individuals or of the population may all play a role.
In determining the savings rates, economic conditions, such as economic stability and total revenue, are relevant. Periods of high economic instability, such as recessions and economic shocks, appear to cause an increase in the rate of savings as people delay current spending to brace for an uncertain future.
A savings rate is computed by either an individual's degree of time choice or as an average over a number of people. Time preference is the degree to which a person or group of individuals prefers current versus future use. The more someone now wants to buy goods and services, the higher their time demand and the lower their savings rate would be, as compared to it in the future. Time preference is the principal economic cause of the savings rate observed.