Discuss household savings

Essay by will1628 May 2006

download word file, 6 pages 5.0

Concern has been raised by an apparent lack of saving in New Zealand. New Zealand's household savings performance is amongst the worst in the OECD. Despite strong economic growth over the last decade, New Zealand's household savings rates have declined when compared to other countries such as United States, Canada, Australia and United Kingdom. It is often argued that policies which faster savings are important, as higher savings will contribute to higher investment and productivity, thus, it will lead to an economic growth. David Skilling of New Zealand Institute states that the increasing household savings should be a national priority and it is likely to lead to higher rates of investment, productivity, and growth. Is there any relevant link between saving, investment and growth? Opponents of this view argues that New Zealand is able to access foreign saving to meet investment demands and domestic savings does not appear to have constrained investment and growth.

However, many evidences and theories predict that increased total saving will lead to higher investment and output. This essay discusses the importance of saving from three perspectives: investment, productivity and growth.

To start with, there is a strong relationship between household saving and investment. Investment is what provides for growth in national wealth. However we cannot increase investment without increasing national saving. If people are investing, then the saving to fund that investment must be coming from somewhere. But it should not be coming from the foreign sector, and it should be coming from home. According to the International Monetary Fund and the OECD, the low level of saving was a key factor in New Zealand's lower productivity, business investment and incomes (Skilling ,2005). Low level of household savings are likely to constrain the development of a country's capital markets, in terms of their...