Effects of Low Saving

Effects of Low Saving
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Effects of Low Saving
Liquids assets include cash and any other cash equivalents which can be easily be converted into cash. Examples of the liquid cash include shares, cash at bank and interest earning assets. It is estimated that 43 percent of US people have no liquid asset. The households with few liquid assets are constrained from meeting daily expenses. The households are unable to pay for medical expenses and college fee for their kids. In case of job loss, the household may end up in abject poverty. Those households with high liquid asset are able to sustain themselves during a decline in household income.
Low saving leads to a decline in the economic growth. As a result, of low saving the investment also declines at a steady rate. A decline in investment causes a reduction in the production. When firms are experience low production, they react by retrenching employees. The unemployed individuals have a low level of saving. They are also, not in a position to make investments in interest earning assets. This leads to a cycle of poverty in the economy. The government should use both fiscal and monetary policy to encourage investment. This may include lowering the interest rate by fixing low bank rate.
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