What is Savings Rate?

The savings rate relates the income earned to the savings. The savings rate is a percentage that indicates which part of the income is not used for consumption but for saving. A distinction is made between the personal savings rate of the individual citizen and the economic savings rate.

This lesson covers the savings rate. You will learn the difference between the personal savings rate and the economic savings rate. You will be informed about the factors that influence the savings rate. After knowing how the savings rate can be interpreted, you will finally be informed how the savings rate can be distinguished from the consumption rate. To deepen your knowledge, you can answer a few exercise questions after the text.

English: savings rate

Why is the savings rate important?

The savings rate has played an important role in two ways. One differentiates:

• Personal savings rate
• Economic savings rate

According to howsmb.com, the personal savings rate is relevant for private consumers. He determines the financial resources that he does not use for consumption. The basis of the determination is the disposable household income.

The economic savings rate is determined for an economy. In this case, the basis is the gross domestic product.

Personal savings rate

The personal savings rate is determined from the monthly income that is available to a private household. To do this, the amount saved is set in relation to the amount that the household has used for consumption.

Determination of the personal savings rate (formula)

To determine the savings rate, the amount saved is divided by the monthly household income.

The amount saved results from the part of the income that is not used for consumption. The money is z. B. deposited in a savings account.

Household income is defined as the total income of the household. Are z. If, for example, both spouses are employed, they both count towards household income. If a property is rented out, the monthly rental income increases the disposable household income.

Example: Calculate the savings rate

Both partners work in a household. The husband earns € 2,800 net and the wife € 2,200 net. Of the disposable income, € 500 per month goes into a savings account.

Question: What is the personal savings rate?

The personal savings rate is determined from the money saved (€ 500 per month) and the available household income (€ 5,000).

Economic savings rate

The economic savings rate comprises the savings of all economic subjects in an economy. In addition to private households, this also includes private companies. The total amount saved by the economy is put in relation to the gross domestic product (GDP).

The Federal Statistical Office supplies the figures from the savings and the gross domestic product.

Savings rate: Savings rate in Germany from 2000 to 2019

Determination of the economic savings rate

Example: calculate the economic savings rate

According to the Federal Statistical Office of an economy, there was a total of 1,500,000 saved for all economic subjects for the past calendar year. €. The GDP was determined to be € 4,500,000 in the same period.

Question: What is the economic savings rate?

To determine the economic savings rate, the savings of all economic agents are compared to GDP.

How does the average savings rate differ from the marginal savings rate?

Two methods can be used to calculate the savings rate :

• Determining the average savings rate
• Calculating the marginal savings rate

Determining the average savings rate

The average savings rate is used when the relation of the saved amounts to the available household income or to the gross domestic product of an entire economy is determined.

Calculating the marginal savings rate

The marginal savings rate is used to determine how a change in income affects savings behavior. Do households save more, less or nothing changes.

Example: calculate marginal savings rate

The wife from example 1 received a raise. She can dispose of € 2,500 net per month. The amount that the couple saves each month is increased from € 500 to € 600.

Question: What is the marginal savings rate?

The marginal savings rate shows that the couple saves more. This results in an increase of 1.32% (11.32% – 10%).

What are the factors that change the savings rate?

The savings rate is directly influenced by household income and gross domestic product. If more financial resources are set aside with an increase in household income or an increase in GDP, the savings rate increases.

If the amount saved does not change, the savings rate drops. If incomes decrease, the opposite effect can occur for the savings rate. This means that the savings rate increases if nothing changes in the amount of the savings, although the household has a lower income.

In addition to this effect, external factors also influence the savings rate. These include B. the interest rate. If the interest on savings is increased, the amount saved also increases.

The interpretation of the savings rate

The savings rate allows the following interpretations :

• A high savings rate indicates a high income.
• Households with high savings rates have a high standard of living.
• The economic savings rate indicates the economic development of an economy. When the economy is good, the savings rate is rather low because more money is spent on consumer goods. When times are bad, reserves are built up.

The demarcation between the savings rate and the consumption rate

The counterpart to the savings rate is the consumption rate. The consumption quota is a percentage of what part of income or GDP is spent on the consumption of goods and services.