The media often tell us that we need to consume more. Central banks like to lower interest rates to stimulate consumption. However, such measures only lead to weak economies and greater economic hardship for most. Let us discuss some benefits of saving money.
Content
Introduction
Before we get into the main positives of saving money for both you personally and society as a whole, let us talk about why it’s wrong to think saving is bad for the economy.
At its core, money represents the amount of wealth that has been produced but not spent. That money is available to invest. And, obviously, these investments are instrumental in growing the economy.
In fact, saving is a requirement for a well-functioning capitalist system. A society without savings, where everything produced is consumed, would have no capital whatsoever. There would be no buildings in good condition, no factories, no research facilities, no infrastructure, no schools. In summary, none of the things required for a decent standard of living.
It is our ability to delay consumption that has allowed our standard of living and economic development to rise so much over the past two centuries. Savings and capital accumulation go hand in hand with economic growth.
Why they want us to consume more
So why are we told that consumption should be encouraged? The main reason comes from the imbalances of the current economic and monetary system. A very large part of Western economies is focused on consumption. It means that their survival depends on people consuming more and more. However, we must ask ourselves whether it makes sense to perpetuate an economic model that generates low-paying jobs and low economic growth in the long run.
Let us illustrate this point with a simple example: We have a group of 50 people and two different economic activities they can do.
In the first scenario those individuals work in a coffeeshop, serving coffee and other drinks throughout the day. It is a consumer economy. This activity generates well-being today but leaves nothing for the future.
In the second scenario we will imagine them building houses. They would be producing capital goods. Those homes can be used not only today, but for many decades. And instead of houses, we could have used industrial machinery or hospitals. The important thing to understand is the impact of both of these activities on the future well-being of society.
As you can see, our economy spends plenty of resources on short-term sectors that do not generate future profit. If this was not enough, the fact that the survival of some sectors is at odds with savings and even requires the population to go into debt, we have evidence that a sector might be too large.
I want to emphasize that this is not a criticism of the consumer economy, since consumption is necessary and generates wealth. Income coming from the consumer economy can also be saved and invested for the long term. My criticism focuses on the current economic system that encourages us to impoverish ourselves just to perpetuate a flawed system.
Benefits of saving money
Let us analyze the 6 benefits of saving money:
1) Better personal finances
The main benefit of saving for an individual is to have their personal finances in order. The habit of saving and investing allows us to increase our wealth and have resources put aside to deal with anything that may happen in the future. Whether it is improving our standard of living or simply being able to cope with the setbacks that may occur throughout life, having a robust capital base will help us a lot.
2) Better personal well-being
Related to the previous point and with societal impact: The number one cause of divorce and stress in society is financial problems. Another major cause of stress is unhappiness at work. And that problem is mainly related to money. After all, wouldn’t having plenty of money allow you to deal with those issues?
3) Increased economic growth
As we have seen above, the availability of savings and capital encourages investment. And with investment comes economic growth. The more capital societies have, the higher their productivity, wealth, wages, and the more job security and lower unemployment. The wealth of a country is a direct consequence of the capital it has accumulated.
4) Better values for society
Saving and investing are positive things for society as they help cultivate constructive values. A good work ethic, long-term planning, and a desire to thrive are all positively correlated with a society where people have good personal finances.
5) Better for the environment
This is an often ignored yet very important point. An economic model based on mass consumption tends to be bad for the environment. Only the most prosperous societies are capable and willing to do things that guarantee both our well-being and that of nature. After all, looking after the environment is not a priority when your basic needs are not met. A prosperous society is not one that consumes more products, but one that consumes better products.
6) Fiscal solidarity
Finally, it should be noted that, in a society where a high percentage of people have assets there is less need for welfare. And this can be viewed as generosity toward your fellow citizens. Even though our politicians think and act in a totally opposite way, for their own purposes, a prosperous society is not the consequence of government distributing money to as many people as possible. A society is prosperous when most of its citizens do not need any help from government. And this is thanks to their work, entrepreneurship, savings and investment.
To conclude the post, I would like to encourage you to start saving and investing today if you have not yet started. Regardless of much you can save, you will adopt a magnificent habit. And far from being something just for your own benefit, you have already learned that it is something that benefits the whole of society, today and in the future. A society with more savings is not only richer, but also more independent and freer.
If you are interested in more Personal Finance topics, just visit the following page:
Personal Finances
And if you would like to subscribe to my newsletter, you will be able to do so here:
Clear Finances
Comments