Part 2 of 3-Part Series
Savings can of course and often are invested into stocks, bonds, real estate etc., and this is why savings are so important. The lower your SR, the less amount of money you are able invest into your future. However, it is not always a matter of simply putting more money aside to save, because this is determined by many important factors. The SR is greatly affected by socioeconomic factors and issues…I know, what exactly does that even mean? Socioeconomics refers to how social and economic factors affect each other and pretty much every part of functioning society. In this particular case, it refers to how these factors can affect you and how you save.
The first and most obvious is how much money you earn. There is a clear relationship that shows the higher your income, the more you save. This is because lower income earners spend majority of their income on basic living necessities, while higher income earners spend more in total, but less in percentage. This leaves them more to save, even while indulging in more luxuries.
The next important factor is the economic condition of society, which refers to both your countries economy and the global economy as they are closely related. Low-income earners are less affected by the global conditions because they have less invested into global marketplaces such as stocks and currencies. But their countries state greatly affects them due to things such as mortgage rates or inflation. High income earners are affected by both for these very same reasons. And both react in the same way during times of economic hardships such as recessions. During these times, we tend to put away more savings or higher SR’s because we are worried for the future and play it safe.
This leads to interest rates because these have a direct impact on our SR. The higher the interest rate, the more we save because we like the idea of earning more back on our investments. Being able to have more in the future outweighs our desire to spend now. Along the same lines, if we know we will have to spend more in the future because of say, taxes, then we are likely to put more aside in preparation for that. When our government spends more and the country deficit increases, taxes are likely to increase in the future to cover that deficit and we will need to be ready for that.
Part 3 continued next week.