Savings

Savings: definition and motivations

Savings generally refer to the economies we can make over a lifetime. It consists of the portion of households' disposable income that is not allocated to immediate consumption, that is not consumed. Several reasons can motivate an individual to save: having a reserve to deal with unforeseen events (unemployment, illness, accident…), building up assets to have additional income, financing a project, or preparing for retirement… Given the many reasons that can motivate saving, the human propensity to save is entirely understandable and conceivable. But then, why just save when you can do more than save? The question we ask ourselves, and which will be the subject of this article, is: can't we save more intelligently?

Saving intelligently

As is often said, poverty ends where saving begins. But wouldn't this phrase make more sense if the saving in question were done in a more thoughtful way? In other words, would saving in itself alleviate poverty? Isn't it rather the way we save that is most important? Certainly yes. Saving is good, but saving intelligently is even better. But unfortunately, nowadays the majority of people save just for the sake of saving. So we need to intervene to encourage people to save more effectively! This intervention can only be achieved through the integration of financial education into our lifestyles.

Financial education: definition and objectives

What is financial education and how do financial education interventions improve individuals' financial knowledge and behaviour?

According to a definition by the OECD Council of June 2005, financial education is the process by which consumers/investors acquire, through information, teaching or objective advice, the skills and confidence necessary to make reasoned and informed choices and to take effective initiatives to improve their financial well-being.

The impact of financial education on savings

Financial education interventions aim to improve financial literacy and capabilities and can therefore have a positive impact in certain areas such as increasing savings. Indeed, knowledge of how to manage a budget, save intelligently and invest confidently is the foundation that will enable people to save their money well and move towards profitable investments, thus inducing wealth creation.

Concrete example: real estate investment

For example, in the case of rental property investments, good financial education will enable you to acquire the skills to establish your budget, find the best loan, assess the most profitable rental price… in short, to achieve greater financial efficiency. The same applies to savings. Good financial education will enable you not to save blindly but tactfully. Automatically, it will be a matter of being sufficiently experienced to be able, on the one hand, to further improve your decision-making and, on the other hand, to put in place much, much finer investment strategies. You would thus be able to:

• Save more wisely (taking into account the yield or profitability of savings)
• Take into account numerous factors such as interest rates, risks, tax rates before finalising your savings decisions
• Save by finding investments that yield returns: do not let your money "sleep" because not only does it not earn much, but it gradually loses value if there is inflation
• Diversify your investments to spread risks

The benefits of good financial education

Thus, financial education would have enabled the acquisition of a set of essential knowledge and skills for more effective saving, that is to say the establishment of regular and sustainable cash flows.

Furthermore, a study carried out by the Allianz group, published in January 2017, "Are you financially literate?" shows how good financial education leads to a better mastery of financial concepts and therefore a greater understanding of the inherent risks, thus influencing the results obtained. The results are unequivocal: people with good financial culture are twice as likely to make better decisions regarding financing, savings or investment products than those who do not possess this financial knowledge!

Financial education: a major challenge

Financial education enables an understanding of how financial systems work and therefore to reason accordingly to improve one's financial well-being. In this regard, the CEO of the Caisse de Dépôt et de Gestion during World Savings Day on 07 November 2019 explained: "Financial education is a major issue for the development of savings necessary for the socio-economic development of the country… the objective of including all citizens cannot be achieved without first improving their economic and financial skills and knowledge."