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Importance and Function of Savings

This document defines a group project with 3 members and discusses savings. It defines savings as money set aside for future use rather than being spent currently. The importance of savings is explained, including financial independence, peace of mind, better future goals like education or a house, security for family in difficult times, avoiding debt, and retirement planning. It differentiates between the power to save, which is the ability to set money aside, versus the will to save, which requires sufficient finances. Savings functions are explained as relating savings to income, and autonomous versus induced savings are differentiated using the savings function formula.

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90 views3 pages

Importance and Function of Savings

This document defines a group project with 3 members and discusses savings. It defines savings as money set aside for future use rather than being spent currently. The importance of savings is explained, including financial independence, peace of mind, better future goals like education or a house, security for family in difficult times, avoiding debt, and retirement planning. It differentiates between the power to save, which is the ability to set money aside, versus the will to save, which requires sufficient finances. Savings functions are explained as relating savings to income, and autonomous versus induced savings are differentiated using the savings function formula.

Uploaded by

Asterisk Souls
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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GROUP 4

Members

1.Samuel Ochieng.

2.Patrick kimilu.

3.Wycliff kamau.

1. Define Savings.

- Is the portion of income not spent on current.

-It is the money set aside for future use and not spent immediately.

2.Importance of savings.

-Savings makes one financially independent.one is able to live without depending on others for financial
support.

-savings offers peace of mind.knowing that you have a certain amount accumulated for times of your
need, gives you peace of mind (stress free)

-savings gives you a better future. your savings can be the answer to a number of your goals e.g buying a
house.

-Helps parents provide education to their children. with considerable amount is savings, you can fuel
your children's dream and pay for the best schools and colleges across the world.

-savings helps one plan for short-term goals.one can also save for short term e.g saving to travel.

-Savings gives your family security incase of unfortunate events. Savings can be used as cashion for your
loved ones and help them overcome any financial difficulty.

-Living debt free.savings Is a one way to avoid debts.

-Savings helps one maximize interest rates. Using a regular saving account,high yield saving
account,when interest rate goes up,your yield goes up as well.

-Savings helps one cater for unforeseen expenses such as health issue, car trouble e.t.c.

-Savings for retirement. The sooner you start saving money for retirement the less you will have to save
in future.
3.Differentiate between power to save and will to save

-Power to save is simple act of putting money away in a saving account i.e monthly while will to save is a
desire of putting money away in saving account of which it may not be possible due to insufficient
finance /power .

4.Show and explain the saving function.

-savings function refers to the standard equation of savings which defines the relationship between
savings and income.

-where saving value can be derived at each level with the use of income value.

S=s+Y(1-b)

Where

s=autonomous savings

(1-b)=marginal propensity to save

Y=income

5. Use the function in (3) above to differentiate between autonomous savings and induced savings

Y=C+S

S=Y-C

S=Y-(a+bY).

S=Y-a-bY

S=-a+Y-bY

S=-a+(1-b)Y

(I-b)marginal prosperity

(b)value of marginal propensity to consumer.

a- autonomous

b- induced

6.Show the saving account diamatically.


7.Use the consumption function to derive the saving function.

S=f(Y)

Y=C+S

S=Y-C

This, saving is the amount of income which Is not spent on consuption.

C=Ç+cY

S= Y-Ç-cY

S=-Ç+Y(1-c)

c is the MPC

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