How does the devt of the financial sector influence the savings behaviour of economic agents in an economy?

Answer 1

I studied economics, but am at a total loss to know what on earth you are talking about. Will you re-phrase your question please and try again? I really would like to give you an answer.

Answer 2

As the financial sector develops, two things can happen.

One: the breadth of financial services should increase. That is banks will offer, not only simple deposit accounts, but also more sophisticated investment vehicles such as unit trusts. Similarly the range of loans available should increase and unsecured loans will become more easily available.

Two: the penetration of the financial sector in different regions of the country should increase; basically opening branches or making their services more accessible to more people.

Now, how this will affect savings behaviour depends on which of these things happen (or both) and the level of financial knowledge in the population.

If people have easier access to banking services, then it is likely that savings with the official financial sector will increase. This is likely to first divert the funds from alternative/traditional methods such as tin boxes. This will serve as an injection of savings into the economy, and working through the Keynesian multiplier, as the banks get hold of more savings and cash, they then lend more out, boosting the economy, and further boosting savings.

If the banks make more sophisticated tools available, and the public is educated in these tools, then two things will happen. First there is likely to be a diversion of savings from say savings accounts and time deposits into say unit trusts as people might look for better returns. Secondly, the higher returns could encourage people to save more, since it is now more 'profitable' to delay consumption. This second effect would thus increase savings.

The availability of unsecured credit is also likely to have some impact on the savings of economic agents. Here again the level of financial awareness is critical. There will be some people who will react to that by using credit and saving less; it is unlikely that this will cause people to save more.

Bottomline, if more people have access to the financial sector, savings will rise. If people are educated enough in financial tools, then there will be a diversion of savings from simple tools to complex tools, and possibly an increase in savings overall. However, if the development of the financial sector takes the form of increase in availability of unsecured credit, then this could decrease savings as people choose not to postpone consumption.

Answer 3

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largely what he said. although i'd argue wether the keynesian multiplier is always greater than 1, but that's digressing slightly.

remember though that in the most developed national financial systems, net saving (or lending, which is the same thing) by economic agents (by which i presume you mean people and corporations) tends to be negative. the US would be the obvious example. as they develop further, savings rates may become even larger negative sums.

however, some places such as china have saved (and therefore lent) more as their financial systems became more able to allow them to do so. once they hit a certain point of development, their savings rate may well start heading in the other direction, which will in turn reduce the amount available to be borrowed by the currently developed countries.

so the answer, as so often in economics, is that it depends what everyone else does.

Answer 4

Pardon? Would love to help but have not got a clue what you are on about. Do you?