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By the end of this section, you will be able to:

  • Evaluate the reasons for making intertemporal choices
  • Interpret an intertemporal budget constraint
  • Analyze why people in America tend to save such a small percentage of their income

Rates of saving in America have never been especially high, but they seem to have dipped even lower in recent years, as the data from the Bureau of Economic Analysis in [link] show. A decision about how much to save can be represented using an intertemporal budget constraint . Household decisions about the quantity of financial savings show the same underlying pattern of logic as the consumption choice decision and the labor-leisure decision.

Personal savings as a percentage of personal income

The graph shows that since the 1980s, people have begun to save much less of their earnings. In 1982, the percentage of income being saved was just less than 10%. In 2012, the percentage of income being saved was less than 4%.
Personal savings were about 7 to 11% of personal income for most of the years from the late 1950s up to the early 1990s. Since then, the rate of personal savings has fallen substantially, although it seems to have bounced back a bit since 2008. (Source: http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm)

The discussion of financial saving here will not focus on the specific financial investment choices, like bank accounts, stocks, bonds, mutual funds, or owning a house or gold coins. The characteristics of these specific financial investments, along with the risks and tradeoffs they pose, are detailed in the Labor and Financial Markets chapter. Here, the focus is saving in total—that is, on how a household determines how much to consume in the present and how much to save, given the expected rate of return (or interest rate), and how the quantity of saving alters when the rate of return changes.

Using marginal utility to make intertemporal choices

Savings behavior varies considerably across households. One factor is that households with higher incomes tend to save a larger percentage of their income. This pattern makes intuitive sense; a well-to-do family has the flexibility in its budget to save 20–25% of income, while a poor family struggling to keep food on the table will find it harder to put money aside.

Another factor that causes personal saving to vary is personal preferences. Some people may prefer to consume more now, and let the future look after itself. Others may wish to enjoy a lavish retirement, complete with expensive vacations, or to pile up money that they can pass along to their grandchildren. There are savers and spendthrifts among the young, middle-aged, and old, and among those with high, middle, and low income levels.

Consider this example: Yelberton is a young man starting off at his first job. He thinks of the “present” as his working life and the “future” as after retirement. Yelberton’s plan is to save money from ages 30 to 60, retire at age 60, and then live off his retirement money from ages 60 to 85. On average, therefore, he will be saving for 30 years. If the rate of return that he can receive is 6% per year, then $1 saved in the present would build up to $5.74 after 30 years (using the formula for compound interest, $1(1 + 0.06) 30 = $5.74). Say that Yelberton will earn $1,000,000 over the 30 years from age 30 to age 60 (this amount is approximately an annual salary of $33,333 multiplied by 30 years). The question for Yelberton is how much of those lifetime earnings to consume during his working life, and how much to put aside until after retirement. This example is obviously built on simplifying assumptions, but it does convey the basic life-cycle choice of saving during working life for future consumption after retirement.

Questions & Answers

what is monopoly and what is monopolaist
Javid Reply
what is the affect of rise in value of dollar ?
Shabana
monopoly"a single firm or company owns all or nearly all of the market for a given type of product or service "monopoly is a price maker ...barrier of entry ,non availability of close substitute.
Shabana
monopolistic competition or market is a situation where there are few or many firm producing identical but differentiated product .eg difference in advertisement ,packing etc
Shabana
monopolistic competition or market is a situation where there are few or many firm producing identical but differentiated product .eg difference in advertisement ,packing
jay
monopoly is a market situation ...where there is a single seller and large number of buyers deals with commodities having no close substitutes......here the sellers are price makers... there is restrictions in the entry and exit of new firms in this market structure....
lovely
what is money?
Hilary
money is a medium of exchange.....through which...commodities are bought and sold
lovely
money is a medium/means of exchange that generally accepted by law
Prince
What is tranfer earnings
Admire
what is savings income?
Limitles
transfer earning is the minimum income that a factor is willing to accept in an occupation,it is also call the supply price of a factor
Fung
what is envelope curve
Dharam
what is depreciation
Fung
depreciation means decrease in value of a assets due to normal wear or year ,means decrease in value of assets like a machine due to its daily use
ru
Refers to wear and tear of capital machinery
apule
what is meant by currency depreciation?
Shabana
an envelope curve is also call an umbrella curve it is any curve that is enclosed by being tangen t to a series of other curves
Fung
fall in the value of currency vis-a-vis any other currency usually $ due to marker forces is called currency depreciation. it is different from devaluation where in value of currency is deliberately reduced to improve BoT
mohammad
depreciation in its broad sense means loss in the value of fixed capital say a tractor due to i) normal wear and tear ii) normal rate of accidental damage iii) expected absolescence to meet this, Depereciation Reserve Fund is created it is calculated by firms on the basis of their experience.
mohammad
what is green revolution ?discuss the achievement of green revolution in India
Sweety Reply
green revolution is the third revolution of agricultural refers to a set of research and development of technology transfer initiative occuring between 1930s and the late 1960s that increased agricultural is called green revolution
Javid
what calculation for demand and supply
Amoo Reply
what is nationalisation
Awuni Reply
it is a process of converting private assets into public assets by undertaking the control of government or state authority
ru
anything which is widely acceptable as a medium of exchange
Shabana Reply
money ,currency
ru
Hello plz,what is the full mean of tertiary?
al Reply
tertiary also called philoshper
Waseem
tertiary means third..for example primary sector ,secondary and tertiary sector... means three number..
ru
ru 9ice tnk
al
your most welcome.
ru
tnz
al
what is money
Tettey
what is a bank
Walters
a financial institution which holds money for its clients ,which collect deposit and lend money at interest and trades generally in money...
Shabana
what is bankers draft ?kindly explain with example .
Shabana
money "anything which is widely acceptable as a medium of exchange"
Shabana
yes u ryt #shabana
Dar
difference between cost and price
Dar
Shallow definition
Adam
cost"the value of input that is the amount of money which is used to produce a good or service . price"an amount of money which has to b paid to buy something.
Shabana
Tertiary is an adjective(pre position) for stages or levels and refers to "top, final, full term ." ; Advanced.
Anderson
bank draft is a type of cheque which a person buy for to pay someone who is not willing to accept a personal cheque .
ru
tertiary sector is an providing any kind of services.
Madhu
primary sector is 'agriculture', secondary sector is ' industrial sector ,and the tertiary sector is ,' service sector' ,
Dharam
what is occupational structure
Madhu Reply
occupational structure refers to the distribution of occupation on the basis of educational ,socoial ,income level in a society or economy
ru
no that is not a exact meaning
Madhu
than what is exact meaning
Dharam
It refers to also the what is the average income of the person
Madhu
what is deficit
Obiajunwa Reply
deficit = expenses > revenue
Waseem
yeah expenses over revenue results in deficit
Paulina
insufficiency
Anderson
What is What is Equilibrium
Bright Reply
from business point of view it is that point where business revanu are equal to its expenses.
ru
in economy where demand is equal to supply is called equalibrium
ru
Equilibrium in economics is where quantity demanded is equal to quantity supplied
Collins
what are the objectives of devaluation
Oyedun
how the government solve the problem of scarcity
SUNDAY Reply
how government solve the problem of scarcity
SUNDAY
by deciding the output limit for every industry and providing resources to these industries according to output limit .the problem can be solved
ru
and by controlling the activity of production like as a mixed economy this problem can be solved
ru
by proper planning to cater the needs of people, demand & supply process may prove helpful. and by imposing heavy import duty on the product to shift the demand towards available alternative sources.
Abida
changing the methods of production, and tax system
Khushal
In problems of scarcity government should adopt a plan or state budget, form a long term policy , deal with corruption , mobilise resources ,systems and monitor.
Anderson
by doing various plans or scheme and providing various kind of free or in less price to the needy people
Madhu
Plx anyone explain bankers draft by giving example.
Shabana
what is price elasticity of demand?
Asamoah Reply
price elasticity of demand is the percentage in quantity demanded of a good or service to the percentage change in its price.
Cobbina
Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price when nothing but the price changes.
TOHEEB
Price elasticity of Demand is a prepotionat change in the demand due to change in price of the goods and service
Dawal
what is monopoly and monopolistic?
KPAAKPA
Price elasticity of demand is the economy measure to show the responsiveness and change in price due to change in quantity.
Lomayani
what is economics
Kenethy Reply
one simple reason to build format in level great leverage for better control knowing grown level greater with word trade..
Larod
Any one who can assit me with Multiplier
Wendy
Yeah sure
Aqrar
You mean Multiplier effect!5
Aqrar
ECONOMICS IS THE STUDY OF ECONOMIC ISSUES OR (ECONOMIC PROBLEMS)ARUSING OUT OF THE FACT THAT RESOURCES ARE SCARCE IN RELATION TO OUR NEEDS,DESIRES OR WE CAN SAY THAT RESOURCES ARE LIMITED OR WANTS ARE UN LIMITED HOW CAN WE UTILIZE LIMITED RESOURCES FOR SETESFY OUR WANTS
Nazneen
is called economics
Nazneen
is call economist
KPAAKPA
then
Nazneen
Economics is all about management of scarce resources. In other words its is about efficience.
Aqrar
Nazneen lets discuss some advance concepts and models
Aqrar
I.can see you have good concepts of Econ
Aqrar
what is multiplier
Wendy
@Wendy A phenomenon whereby a given change in a particular input, such as government spending, causes a larger change in an output, such as gross domestic product.
Aqrar
economic is social science that deal with the human behavior as a difference b/ween earth and scale.
jacob
Economics is a science that studies human behaviour in relation to ends and scarce means which have alternative uses
Collins
economics is a social science that deal with human behavior in aspect of end and scarce and the alternative use
Chibuzor
pls I want to known the difference between inflation and deflation, what is there difference ?
jacob
economics is the study of how man used scarce recourse to satisfy human wants
abdullahi
inflation is the increase in the general price level while deflation is decrease in general price level.
Azhar
evening,dear friends. I'm very glad to be one of you so will you please give me full imformaton about economics epically the time table of the first year of the univerysity
abdullahi
hi iam from india
Naa
economic is the study of human behavior, want by professor Robert say is all about choice and want
KPAAKPA
what is SCARCITY?
KPAAKPA
Scarcity is the limitation of resources within the economy
karl
means that human wants for goods, services and resources exceed what is available
KPAAKPA
Scarcity is inefficient resources to satisfy human want.
Pat
inflation can define as general rise in the price due to too much money in circulation, while is the decrease of the price of goods due to low money in circulation.
Musa
what is the law of dimension return?
jacob
Jacob it's diminishing return
The
The study of house hold management and money measurements
Wardan
hi
Augustine
what is mearnt of economies of scale..pls asist me
Augustine
hii
Vimarsh
when larger amount of output is produced , per unit input costs tend to fall , heading towards economiea of scale ..by acale we mean scale of production here
Vimarsh
economies# scale#
Vimarsh
alright thank u..what are its advantages
Augustine
the cost of production is low and more efficient
Vimarsh
What is demand?
Bright
demand is the various goods and services consumers are willing and able to purchase at a particular price
Paulina
What is inflation
Bright
Economics is a social science focusing on the economy and its agents in production,distribution,buying and selling involving resources such as raw materials and labour at micro ie individual or family and macro ie aggregate or total and state levels . There are several forms or brands or approache
Anderson
scarcity means non availability things or resources which satisfy humans
Madhu
demanding the various goods and services which satisfy humans needs
Madhu
when we calculate shortage and surplus why do we subtract quantity demanded from quantity supplied
The Reply
to determine surplus
Concepcion
true using of graphs
jacob
because we try to avoid negative answers
Eric
what is price ceiling
Nazneen Reply
price ceiling is a government-imposed price control, or limit, on how high a price is charged for a product. Governments use price ceilings to protect consumers from conditions that could make commodities prohibitively expensive.
Rina
price effect= Income Effect+ Substitution Effect
Muhammad
Well described Rina
Aqrar
why average revenue is equal to price in monopoly market?
khin Reply
Because One person get the monopole on demand market without any concurrence
Christian
hlw
Luman
hlw
Sheikh

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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