Chapter 19: Motives for Saving

Question 1

Savings

Answer 1

Deferral of consumption for various motives

Question 2

Precautionary motive

Answer 2

Build up a reserve for unforeseen circumstances
* unknown timeline
* unknown amount
* unknown purpose

Interest earned is low

Question 3

Special purpose motive

Answer 3

For planned expenses
* defined purpose
* moment is known
* amount is usually known

IR for customer can be higher if the amount can not be withdrawn on demand

Question 4

Capital accumulation motive

Answer 4

Build capital for later in life (e.g. pension)
* Centered on financial security
* Start period is generally known and is far away
* Duration of spending period is not known
* Amount is not known

High interest rate is desired

Question 5

Financial situation: Income

Answer 5

• Regular income = reoccuring e.g. salary, freelance, spousal support
• Incidental income = Not reoccuring e.g. inheritence or sale of a house

Question 6

Financial Situation: Expenses

Answer 6

• Ongoing = fixed e.g. rent, taxes, insurance, household, leisure
• Incidental = buying a computer, boat etc

Question 7

Surplus or deficit

Answer 7

How much is left over, can be used for savings

If a negative amount after, then no amount left to save