SAVING

Production activity is undertaken in production units. The owners of factors of production render services to these units. In return they incomes in the form of wages and salaries, rent, interest and profits.There are two alternative uses of income for any person. A part of the income spent on acquiring goods and services for satisfaction of wants. Such an expenditure is called consumption expenditure. The unspent part of income is called 'saving'. Thus saving equals excess of income over expenditure.SAVING= INCOME - CONSUMPTION EXPENDITUREWhat do people do with savings? The savings are in the form of money. They may keep these savings at home or keep the same in banks. There may be several motives for illness, old age or any other unexpected expenditure. But generally the main motive is to earn interest income by leading these savings. It gives them an additional source of income in future years. Saving may be lent to the investors through banks or directly. The borrower pays interest.Savings play a very important role in production process. In fact, saving is a major source of financing investment. Higher the saving more the possibility of investment. Investment means acquiring goods and services for production. Savings are used to acquire investment goods. So saving is the foundation of investment.