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Licensed Unlicensed Requires Authentication Published by De Gruyter 2022

8 Approaches to Saving

From the book De Gruyter Handbook of Personal Finance

  • Inga Timmerman

Abstract

Theories on savings range from the classic life cycle and permanent income hypotheses to the newer strands of literature that focus on the psychological aspect. There are several factors that influence the personal savings rate. Among the most often cited are individual demographic characteristics such as age and race, education level, financial knowledge and literacy, and wealth. Lower-income families save less than higher-income families; the same is true for less-educated families. The financial literacy literature points to a strong positive link between financial knowledge and savings behavior. Cultural and geographical differences also have an impact on savings rates, especially when explaining differences in saving across countries. Increasing the personal savings rate has an impact not only on individual wealth but also on the overall economy; therefore, research into saving strategies is imperative. The savings landscape in the future could change by incorporating the psychological aspects of money into traditional financial planning models and focusing on how people actually behave rather than how traditional economic theory predicts they will behave. Providers of personal finance advice have a role in managing and increasing household savings. This means that by focusing on what they can change and influence, such as a focus on clients’ human capital and the development of clients’ financial knowledge, financial advisors can enhance the wealth of their clients.

© 2022 Walter de Gruyter GmbH, Berlin/Boston
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