1 / 8100%
Effect of personal savings on the income of SSDF and resource mobilization
Most SACCOs and financial institutions would want to establish the credit worthiness of an
individual before deciding on the amount to give to the individual in terms of loan. The
parameters used to measure the credit worthiness of the individuals are the amount of savings the
individuals have. The more the savings one has the more the loans that one is likely to obtain.
This simply means, those who are able to save more shall get more loans than those who do not
save, (Msemakweli, L., 2004).
The income not spent on consumption is defined as saving. Saving is the act of not consuming all
of one’s current income. Whatever is not consumed out of disposable income is by definition
saving. A tri-lateral relationship among savings, consumption, and income is the key determinant
of the amount of personal savings. On the first side, given a certain income, the decision to buy
goods and services (consumption) negatively affects savings. Savings passively adjust to
consumption and income. They represent a resource slack, buffering shocks in income and
consumption desires, (Msemakweli, L., 2004).
According to personal finance concept, saving means keeping or conserving money to be used in
future, whereby, usually the money is deposited, instead of investing it, where no factor is
always involved. Saving is done with some pre-determined investment objectives. In other
words, saving is the act of conserving cash for any purpose or for future usage. On the other
hand, savings means the cash saved to that very moment, (Msemakweli, L., 2004).
Duration of personal savings
Generally, the real meaning of saving is seeking to preserve assets that you accumulate over
time. For savers, stability of principal is a higher priority than return potential. A saver tends to
be risk averse and typically stores money in instruments such as savings and call accounts, which
facilities are offered by SACCOs and building societies. These types of low-risk vehicles
ordinarily offer relatively low potential for return, but the principal and interest are guaranteed.
While they may be suitable for your immediate and short-term liquidity needs, they are seldom
the best choices for accomplishing your long-term financial objectives, due to their modest
potential for returns, (Msemakweli, L., 2004).
Further, bear in mind that the modest return potential of many low-risk savings instruments
might not even keep pace with inflation. As the cost of living increases, you will need more
money to buy goods and services and meet your financial goals. Your money should have the
potential to grow faster than inflation if you are to gain ground achieving your long-term
financial objectives, (Kyamulesire, 2008).
Amounts of personal savings in the Rural SACCO
Saving and the rate of interest is one of the very important factors which exercises influence on
the volume of saving. If the rate of interest is high, it generally induces people to save more
money and if it is low, the saving is discouraged. However, there will of course be a few people
who will try to save more when the interest rate is low save less when the interest rate is high just
to provide for themselves a certain annual income for their old age or for their dependants. In
other terms, savings can arise from a compulsory tendency of renouncing and postponing even
balance consumption (greediness) or, instead, they can be the result of sharply rising income,
with higher consumption taking place meanwhile, (Kyamulesire, 2008).
Cumulated and invested personal savings give rise to personal wealth stock. Savings left in
SACCOs accounts are an important part of money. To the extent the SACCOs decide to finance
business investment with respect to the amount of deposits they received, an increase of personal
savings could foster investment by the established firms. If money deposited is converted in
subscription to equity in one's own firm, savings serve for personal careers and independence,
again with a possible link to investment in a macroeconomic sense, (Kyamulesire, 2008).
Invested in Treasury bonds, savings finance public expenditure. Invested in shares, they can
directly or indirectly finance the firms. Savings can also be transferred abroad by remittances,
giving rise to a new choice their between consumption and savings. Power to save depends upon
the level of income which a person earns. In case of a nation, power to save depends on proper
utilization of natural resources. It is because when the income is low, then almost the whole
amount is spent on meeting the bare necessities of life so saving is very nominal. But in case of
high income, one can save if he likes because he has got the surplus income over consumption,
(Kyamulesire, 2008).
Duration for personal savings in the Rural SACCO
People save money as a provision against some unforeseen circumstances which might arise in
the future. A few others accumulate wealth for their dependants and others save basically to
access credit. All these prudential considerations can be constituted under the heading foresight.
There is a significant difference between the terms "saving" and "savings". While the former
implies addition to the value of any asset, the latter represents a part of a particular asset. Hence,
"saving" is a flow concept and "savings", a stock concept, (Kyamulesire, 2008). The small scale
dairy farmers must save for a predetermined period of time in their Rural SACCOs before they
access credit.
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