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The Things We Do: Saving for Change

Roxanne Bauer's picture

At the basis of communication and public policy are assumptions about human beings- their rationality or irrationality, their foibles, wants and preferences. A lot depends on whether these assumptions are correct. In this feature, we bring you fascinating examples of human behavior from across the globe.

Saving money is hard.  However, it is also considered to be necessary for making large purchases like a house or car, opening up a business, or planning for retirement. Saving can be particularly difficult for the poor who live day-by-day and do not have much disposable income.  In wealthier countries, financial institutions offer a variety of products to help their clients set aside savings, but in poorer countries, there are fewer savings options. Many poor people end up hiding cash, investing in assets such as livestock or land, or engaging in informal savings arrangements

Yet, for those who have even a little money to stow away, the benefits can be enormous. Massachusetts Institute of Technology (MIT) economists Abhijit Banerjee and Esther Duflo have found that even those who live on less than $1 per day have the ability save and often spend money on nonessential items such as alcohol, tobacco, and televisions.  Moreover, when poor people increase their earnings, they spend only two-thirds of their increased income on food.  These findings suggest that poor people do have funds to save.

But why is it so difficult for people of all income levels to save?

Quote of the Week: John Maynard Keynes

Sina Odugbemi's picture

“A sound banker is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.”

- John Maynard Keynes, a British economist whose ideas have fundamentally affected the theory and practice of modern macroeconomics, and informed the economic policies of governments. He built on and greatly refined earlier work on the causes of business cycles, and is widely considered to be one of the founders of modern macroeconomics and the most influential economist of the 20th century. His ideas are the basis for the school of thought known as Keynesian economics, and its various offshoots.

Quote of the Week: Philip Stephens

Sina Odugbemi's picture

 "It is time to admit defeat. The bankers have got away with it. They have seen off politicians, regulators and angry citizens alike to stroll triumphant from the ruins of the great crash.”

- Philip Stephens, associate editor and chief political commentator of  the Financial Times.