To save or to spend

TO SAVE OR TO SPEND? EVERYDAY LIFE DILEMMAS

By Juan Jose Salcedo Today we are revising one of the most ancient economic problems: to save your earnings for future consumption or to consume them on the same periods they we’re received. We will dwell in various aspects about how our decision on saving and consumption can affect our lives!

E CONOMICS Tremendous benefits can be obtained by accumulating assets (saving) as you can invest in higher capital demanding projects, which usually yield better returns. Imagine you are offered an investing opportunity with a return twice the actual active interest rate, but in order to chip in you must pay manifolds your monthly income. In order to benefit you should have already been saving for a while!

The same logic applies to economies as a whole: by having many people in the financial systems saving, bigger projects can be financed. That’s why governments should encourage savings within their country: by using the internal credit market wisely and productively, they can fund infrastructure programs and boost growth!

P SYCHOLOGY Yet, not all the benefits from savings are in the economic arena. We can make an analogy between Walter Mischel’s studies (the marshmallows) in the sense that delaying gratification is to saving as actual gratification is to spending.

Ecuador Económica 2013 | To Save or to Spend? Everyday life dilemmas

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Shed in this light, our willingness to save money could be associated with the capacity of delaying gratification, and thus generate positive outcomes in professional and social life.

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Saving should be intended to promote a smoother spending level across time in our lives, no to accumulate wealth endlessly. Avoid bemoaning one’s own situation in face of unexpected expenses and uncertainty. Whether it is a natural disaster that affects our house, a close relative getting ill, or the government threatening the labor stability, by having a saved fund you can adapt to unexpected expenses without having to reduce your normal spending level.

C ONCLUSION Some degree of saving is always positive: it can come very handy in unexpected situations, whether these are negative or positive. However, many people are not in the capacity of saving as their income is just enough to cover for their consumption, but as they progress they can highly benefit from saving as they could participate in bigger projects, build self-control and tackle uncertainty.

Ecuador Económica 2013 | To Save or to Spend? Everyday life dilemmas

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