Does our economy improve when we spend our money or save our money?
Answer:
Both - the long term health of the economy depends on consumer spending and consumer savings. Like everything else in life it is all about balance. Too little savings and the economy grows at an 'artificial' pace. Too little spending, and the economy shrinks (recession). Too little savings, and the pool of liquidity for investing shrinks.
Very good question...I think we need to have a little bit of both, we need to save our money, but also spend it wisely. That is what is wrong with most people, they just spend their money, they don't spend it wisely. Sorry if I didn't choose a side.
In order for an economy to stay active money, goods, services, etc.. have to be moving.
If everyone just sat on their money the economy would stagnate.
Spend
You are beginning to think! Our society is directed by a few people on the top, which are old and don't know any better then to make a buck the same way its done since 2000 years. This elite makes us believe, we need to spend, spend and spend, otherwise we --- stop spending, huuh? What happens is, that 90% of the population spends and the rest owns the country. Rockefeller lived like a pauper, Warren Buffet is more frugal, then a guy who makes $30,000 a year.
Look at Oprah and Will Smith, they got broke, making mega bucks, until they hired an accountant, who basically told them to stop spending. As more we spend, as more taxes we pay and as more money goes up the ladder to the rich. The top 500 richest people in the US trippled, their worth in the last 7 years, the rest gained nothing, after adjusting for inflation.
when the MONEY is SPENT, the economy turns. money spent means work. while money saved means less work.
It would sure be good for my economy.
My parents only took a loan out for a house, that's it, always paid cash for a car even. They had that house paid for in 10 years, too. That was in the early 60's whent the wage was really low. My dad had 2 jobs and my mom had a job some of the time. I think they helped theirselves back then and didn't worry about the economy.
They never had a charge card.
The answer is the economy benefits either way. If you spend the businesses make more of a profit and they can reinvest their profits and expand their companies.
If you save, the banks, mutual funds, bonds etc. have more money to lend for business growth, new infrastructure, finance new risky ventures, etc.
Today consumer spending is 70% of our nation's GDP. Gross Domestic Product. The GDP is like the nation's income.
Our savings rate as a nation is very low but we still grow. China has a large savings rate and they are the fastest growing economy among the major nations.
So either way works. Today's markets are global. So some of our capital comes from overseas. That somewhat offsets our low savings rate. We try to get the Chinese to spend more and save less to help balance our trade deficit with them.
i.e., We import from China far more than they import from us.
Saving money helps the economy by building a cash basis that banks can invest in stocks/bonds and the individual can accrue interest on. Investing in stocks/bonds strengthens companies.
Spending monies helps the economy by consumers supply/demand on hard/soft goods and services. This gives companies revenues. Revenues must be spent to buy more goods to sell to more consumers, where an investment can improve research & development for new inventions or plant improvements instead on being spent on goods for resale.
Both actions are needed for a healthy economy.
Patrick M has the equilibrium answer.
When the economy is running well, then if you save, someone else can invest, and vice versa and everything is good.
There is a market for savings and investment. People put their savings in a bank and earn interest. The bank loans to a businessman who builds a factory. The factory produces consumption goods for us to consume.
However, in macroeconomics, some of us believe the economy can go out of equilibrium. If savings is too much for investment, then income will fall. There will be said to be insufficient aggregate demand. This is the Keynesian theory.
In this instance, we should spend more. Also, this is the case where Supply does not create its own Demand.
In a old fashioned Monetarist view, all markets clear but there is not enough money available for investment, so we allow the banks to loan more by charing them less on their excess holdings at the end of the day (reducing the overnight rate).
In a real business cycle or supply side view, the economy is always in equilibrium and there is inadequate technological growth and nothing the government can do can help the economy.
it really depends on when, how and on what you spend your money on. This is true for both private and public sector entities.
saving money is generally considered a good habit espeically in asian cultures but then to say whether or not its good to save in general terms and if the economic could benefit from it really depends on the context.
old ppl need to save for retirement and not depend entirely on the government because that could cripple the government financially. young ppl are encouraged to spend but this is good for the economy only if the economy can produce enough good jobs for them to keep up with their spending habits. and what does America as a whole need to do now? actually given the current economic circumstances, can we really say that "as a whole" this is what we really need to do?? what does "as a whole" mean??
Depends, on what you spend and for what you save it.
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