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From Wikipedia, the free encyclopedia

Dissaving is negative saving. If spending is greater than disposable income, dissaving is taking place. This spending is financed by already accumulated savings, such as money in a savings account, or it can be borrowed. Household dissaving therefore corresponds to an absolute decrease in their financial investments.

There are multiple reasons why people dissave. The first one is that a person accumulates savings for the purpose of spending them after retirement. This type of dissaving is intentional and voluntary and requires planning how much to save and dissave in order not to run out of money in their savings. Another reason is that a person experiences a shock, e.g. sudden unemployment or medical emergency and is forced to spend more than they earn. This person first dissaves from their personal savings and possibly later has to borrow money to finance their expenses. Third reason is that a person lacks judgment and lives above their means. These people finance their spendings from credit and are the most prone to shocks which may lead to personal bankruptcy.[1] We can also assimilate a request for credit to early dissaving. Indeed, a household that has a consumer credit for the acquisition of a good commits to repay the loan and the interest on its future income, which reduces its future savings.

Dissaving was reported as a typical response to deficits, for households with normal income and expenditure patterns during the depression of the 1930s.[2] Although this phenomenon is very rare at the collective level, it is quite common at the individual level since, the purpose of savings is to one day be used for consumer purchases. With a phenomenon of dissaving at the collective level would be bad for the economy of a country since it is used for financing. Zero savings would practically prevent the financing of new investments and therefore potential growth. Dismissals at the collective level would have even more important consequences because the decrease in outstanding investments would lead to a drop in the quotations of financial securities (stocks and bonds) and would risk putting the banks and the systems of collecting savings into bankruptcy. following a liquidity crisis. Massive dissaving to consumption can also lead to inflation risks if the production of consumer goods is not sufficient to meet new demand.[3]

The life-cycle hypothesis of saving, of Ando and Modigliani, proposes that people work and save when they are young and retire and dissave when they become elderly.[4] However, this theory is not fully verified, at least in France. The savings rate is falling due to the aging of the population. In fact, the savings rate continues to increase beyond the age of 50, reaching 22.5% for those over 60. This phenomenon is undoubtedly explained in part by the concern to pass on wealth to subsequent generations as well as to cover unforeseen health expenses.[5]

Hayashi, Ando, and Ferris investigated whether the elderly save or dissave and found for the United States that families after retirement dissave on average about a third of their peak wealth by the time of death, leaving the rest (mostly their homes) as bequests.[6] In contrast they found that for Japan the elderly forming independent households and those living with children continue to save, for all but the most elderly. From age 80 or more and, also the single elderly of all ages, the dissaving patterns were evident.

Later evidence presented by Horioka reinforces the life cycle hypothesis in Japan.[7]

Clara Fernström researched whether there is any correlation between the dissaving of a person and the person’s age, gender, marital status, income and the probability of surviving until the following year. Her study shows following results and provides possible explanation as follows:

  • Annual savings increase with lower survival probability. That might be explained by either bequest motives or the low utility rate of consumption for a person with low survival probability. Person with low survival probability is likely to be ill and not able to enjoy the consumption as much as a healthy person, therefore they decide to consume little.
  • People with low income show less dissaving after a shock than people with high income. People with low income usually have low savings, therefore don’t have the possibility to dissave without borrowing. However, people with high savings can choose how much to dissave.
  • People with children save more than childless people, which is explained by wanting to leave a bequest for their offspring.
  • Married individuals save less than the singles. Unlike people with children, there seems to be no visible intent to save for bequest reasons. Moreover, it is possible that the utility rate of consumption is higher for married individuals, as the utility is shared with their spouse. Moreover, single people save more, because they can’t rely financially on their husband or wife.
  • Older people dissave less than younger people, which is probably linked to the fact that older people have generally lower probability of survival.[8]

YouTube Encyclopedic

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  • Consumption function basics | Macroeconomics | Khan Academy
  • The Global Economy: Higher Mean, Higher Variance?
  • Consumption curve


Male: What I want to do in this video is introduce you to the idea of a consumption function. It's a very simple idea. It's really just the notion that income, income in aggregate in an economy can drive consumption in aggregate in an economy. Just to make things tangible, I will construct a consumption function for a hypothetical economy, and we can debate whether we can construct a better one. All the numbers don't have to be exactly what I'm about to do, but this is just to make things concrete in your mind. Maybe we have a hypothetical economy where consumption is going to be equal to ... well, maybe there's some base level of consumption even if there's no aggregate income in our economy. It's hard to image, but let's say there isn't. There will still be consumption. Maybe people can do it by digging into their savings. They're essentially using resources that they've already accumulated in some way. Let's say that base level of consumption, let's call that 500. It could be billions of dollars or gold coins or clamshells or whatever the unit of measuring economic activity is in our economy. That's our base level of consumption. Then let's say if there is some aggregate income, people will spend 60% of it. I'm just picking these numbers somewhat arbitrarily. Let's say if there's some above and beyond the base level, they're going to spend 0.6 of any aggregate income they have. Actually, to be a little bit more particular, I'll write not just income, I'll write disposable income. I'll want to do that in a different color. They will ... that's not a different color. Above and beyond the base level, they'll spend 60% of their disposable income. I make the distinction, just to clarify our model, between income and disposable income because all of the aggregate income in an economy does not end up in consumers' pockets. Just for a simplification, you might say, "Yeah, some of it ends up in firms' pockets," but the firms, at the end of the day, are owned by individuals, so it can end up in individuals' or consumers' pockets. But some of it goes off to the government. When you think about income, and if you spend any time looking at your pay stub this will become familiar to you, you have your income but you don't end up with all of that in your checking account or your pocket or your savings account. A good fraction of that is taken out for taxes. What you have left over when you subtract taxes out of income, that is your disposable income. That's why I write this here because that's actually a more reasonable thing to say. People will spend 60% of their disposable income. They obviously can't spend a fraction of stuff that they don't have, the stuff that's taken out for taxes. Just to visualize this, we can draw it. This will be a line. This might ring a bell from your early algebra days. Just the variables are different. Instead of a y, we have a c, but that's still the dependent variable. It's a function of disposable income. In algebra you'll often call this the independent variable. The most typical variable is x. It's really the same idea over here. Let me draw this a little bit neater. We can graph this, what's essentially going to be a line. It doesn't have to be a line. We just constructed a consumption function that happens to be a line. This is consumption right over here in the vertical axis. That could be in billions of dollars or clamshells or whatever else. Then right over here we have disposable income. If there is zero disposable income, maybe I'll draw a little table over here. This is I'll call it disposable income and this is consumption. If there's zero disposable income, then this whole term right over here is 0. Then you have 500 billion dollars, or whatever our units are, of base consumption. This would correspond to this point right over here. In the horizontal axis you don't move at all because this is 0. Vertical axis is 500. So you have 500. Let's say disposable income is 1,000 whatever our units are. So this is 500. Let's say this is 1,000 billion clamshells. This could be in billions of clamshells. I don't want to keep having to say that over and over again. What is our consumption going to be in our units? Our consumption is going to be equal to 500 + 0.6 x 1,000 which is equal to 500 + 600 which is equal to 1,100. That would correspond, this right over here, would correspond to; so 1,000, so this might be 1,000 on this axis so this would be 1,100 to this point right over here. That would be the coordinate: 1,000; 1,100. This is a line. Two points make a line. In this particular case we have a consumption function that looks something like this. We picked two points to draw it. If you remember a little bit of your slope, you could view this as your y intercept, or in this case your c intercept, and that your slope would be the .6, and we'll talk more about that in future videos when we dig into the marginal propensity to consume a little bit more. But the one thing I just want to highlight is it's a very simple idea. This does not have to be the consumption function. The consumption functions that we tend to study in introductory economics classes will look like this. It will be a line that has some intersection, some base level of consumption. But one could argue it might be very different. Maybe the consumption function looks like this. Maybe when income is low, for every incremental dollar of income, people are probably going to spend a lot. As they become richer and richer and richer, as their income goes higher and higher, they're going to spend less and less a fraction of their disposable income. Essentially what I'm describing here is a marginal propensity to consume changes. In our first model, we had a very basic marginal propensity to consume. It was constant. For every incremental dollar, .6 of that got spent. So we had a marginal propensity to consume that was constant of 0.6. Marginal propensity to consume. But, you could argue, that maybe a more complex model is justified. That when you have a very high marginal propensity to consume, when people have very little because they have a very low standard of living, they really want to just get a little bit more just so they can live a decent life, but as they get more and more income they say, "Hey, I'm starting to max out my standard of living, "I'll save more and more of it for a rainy day."

See also


  1. ^ Dollarhide, Maya E. "Dissaving". Investopedia. Retrieved 29 April 2021.
  2. ^ Vance, Lawrence L. (1947). "The Interpretation of Consumer Dis-Saving". Journal of Marketing. 11 (3): 243–249. JSTOR 1246136.
  3. ^
  4. ^ Ando, Albert; Modigliani, Franco (1963). "The 'Life Cycle' Hypothesis of Saving: Aggregate Implications and Tests". American Economic Review. 53 (1): 55–84. JSTOR 1817129.
  5. ^
  6. ^ Hayashi, Fumio; Ando, Albert; Ferris, Richard (1988). "Life cycle and bequest savings A study of Japanese and U.S. households based on data from the 1984 NSFIE and the 1983 survey of consumer finances". Journal of the Japanese and International Economies. 2 (4): 450–491. doi:10.1016/0889-1583(88)90003-2.
  7. ^ Horioka, Charles Yuji (2006). "Do the elderly dissave in Japan?". In Klein, Lawrence Robert (ed.). Long-run growth and short-run stabilization: essays in memory of Albert Ando. Edward Elgar. pp. 129–136. ISBN 1-84376-643-4.
  8. ^ "Women in finance 2019, Clara Fernström, "Dying and Dissaving"". Youtube. Retrieved 29 April 2021.

External links

This page was last edited on 28 July 2021, at 17:38
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