Saving and investing (2)

Saving is not just a matter of children and piggy banks, as the common image suggests. Saving, in national accounts, is the part of disposable income that is not spent on final consumption during the current period and is available for use at a later time. Here, a distinction must be made between saving as an annual flow and financial wealth as an accumulated stock of assets. Global financial wealth reached about $333 trillion at the end of 2025, according to an estimate by Boston Consulting Group. But this number does not represent what the world saved in one year, and it does not necessarily represent liquid money ready to be spent or redirected. As for global gross saving, which is the appropriate measure of the portion of unspent income in a specific year, it reached about 26 percent of the global gross domestic product in the year 2024; That is approximately 29 trillion dollars. It is not correct to describe this number as including “foreign savings” at the level of the entire world; Foreign money is a concept that relates to the economy of a particular country when it finances its investment from abroad, but at the global level, net foreign relations correspond. Individuals and families save to hedge against emergencies, to buy a home, for education, or for retirement. Companies may save to finance expansion or weather fluctuations. Saving is important because it provides resources for financing, but it does not in itself guarantee economic growth. The result depends on the economy's ability to direct funding to viable and productive projects. Investment has two meanings that should not be confused. In the national accounts, investment relates to capital formation: the creation or acquisition of productive assets, such as buildings, roads, machinery and equipment,In addition to the change in inventories and the acquisition of valuable collectibles. In common financial usage, a person may be said to have invested when he bought a stock, bond, real estate, gold, a work of art, or a digital asset. These assets may generate income or capital gain, but they are not equal in their economic impact. Purchasing new shares when they are issued, or new bonds to finance a specific project, can provide money for the issuing entity. Purchasing a stock or bond from another investor in the secondary market transfers ownership between two parties, and does not directly finance new capital spending. Also, holding gold, collectibles, or digital assets for the purpose of speculation does not, in itself, add new productive capacity to the economy. Savings are linked to investment across the financial system, capital markets, and direct financing. Companies may finance expansion from retained earnings, borrowing, or issuing stocks and bonds. Governments may issue debt instruments to finance their obligations or investments, but public borrowing does not necessarily mean financing productive investment. The actual purpose of spending is what determines its economic impact. It is inaccurate to say that banks lend people's deposits to projects one-on-one. Commercial banks do not simply act as intermediaries passing on savers' deposits to borrowers; Most bank money is created when loans are granted. Therefore, the availability of deposits alone is not sufficient to anticipate investment expansion; Rather, it is necessary to have bankable projects, creditworthy borrowers, and a stable financial and regulatory environment. In macroeconomics, the relationship between saving and investment is not a mechanical causal rule that everything that is saved is invested locally.In an open economy, the current account balance equals the difference between national saving and domestic investment. If domestic investment exceeds national saving, a current account deficit appears, financed from abroad. If saving exceeds investment, a surplus emerges corresponding to net lending or investment abroad. Therefore, the equality between saving and investment at the global level is identical in accounting in general, while they may differ within a particular economy due to cross-border trade and financing. Also, the general budget surplus increases the state’s financial flexibility, but it is not an automatic investment. It may go towards reducing debt, building financial assets, or financing different spending priorities. Development impact is achieved when resources are actually allocated to worthwhile projects, with good governance and the ability to implement and measure returns. The bottom line is that saving is important, but it is not an independent goal. The economy needs sufficient savings, a financial system that directs financing, and real, productive investments. When these elements come together, funding turns into projects that expand production capacity, create job opportunities, improve competitiveness, and support growth in a sustainable manner. Continued

Founder of Guatha Counseling Center