Meaning: -The saving function is the counterpart of consumption function.
Therefore, the factors determining savings are similar to that of consumption
function. The factors can be divided into two groups.
Ø Objective Factors Subjective
Factors
I.
Objective factors: -
1. Level of Income: - saving is
the function of income. Normally, other thing remaining same, higher the
income, higher would be the saving and vice versa.
2. Income Distribution: -The
pattern of saving is greatly influenced by the pattern of income distribution
in the society. If the income is concentrated with few people, then the rate of
savings in the society may go up.
3. Degree of indebtedness: -The savings rate also depends upon the degree of indebtedness.
Higher the degree of indebtedness, lower is the propensity to save. This is
because; a part of current income goes into repayment of loan and interest
payments.
4. Price Level: -The rate of saving also depends upon the price level in the
country. Higher the prices, the more would be the consumption expenditure, and
therefore, lower would be the saving rate, and vice-versa.
5. Rate of interest: -Saving is the function of interest. Higher the rate of interest
more is the attraction to save. Therefore, a higher interest rate wold makes
people to save more in bank deposits, bonds, etc.
II.
Subjective Factors: -
1. Tendency to save: -The amount of savings depends upon
the tendency to save. There are certain individuals with a high tendency to
save, and therefore, their savings rate would be higher.
2. Precaution Motive:-People may tend to save a part of
their income in order to build up reserves against unforeseen situations.
Therefore, those individuals who develop a precaution motive tend to save more.
3. Foresight Motive: - People may tend t save a part of their income for future needs,
such as higher education for the children, old age needs, and so on. Therefore,
persons who develop foresight motive tend to save more.
4.
Avarice (greed) Motive: -This motive
makes people to save more, even at the cost of consumption. People get personal
satisfaction in saving more.For example, a miser may save more, even at the
cost of consumption.
5.
Motive of Calculation: -People may
save more with the intention of earning higher return on accumulated savings.
Therefore, current consumption may reduce.
6.
Motive of Pride: - Some people
develop a sense of pride by saving more. They boast (show off) of their savings
to others. Therefore, they may reduce consumption, and save more.
