Introduction to Finance

Voluntary savings
are savings in the form of fi nancial assets held or set aside for use 
in the future. 
Contractual savings
are savings accumulated on a regular schedule for a 
specifi ed length of time by prior agreement. An example is the accumulation of reserves 
in insurance and pension funds. Contractual savings are not determined by current 
decisions. They are disciplined by previous commitments that the saver has some incentive 
to honor.
Individuals maintain savings for a number of reasons. They set aside a part of their cur-
rent income to make mortgage payments on loans used to purchase homes. They also save 
to acquire costly durable consumer goods, such as cars and appliances. Savings are set aside 
by individuals to meet unforeseeable fi nancial needs. These savings are not set aside for spe-
cifi c future consumption; instead, they represent emergency or rainy-day funds. Individuals 
may also save for such long-term, foreseeable spending as children’s college education or for 
retirement. For short periods, people may save a portion of current income simply because 
desirable goods and services are not available for purchase.
The 
personal savings rate
 
is calculated as personal savings divided by disposable per-
sonal income. It represents the decision by individuals, as an economic unit, to save for future 
consumption by spending less on personal outlays relative to the disposable personal income 
they generate. 
Table 7.3
shows personal savings rates for selected years in the United States 
beginning in 1960. Personal savings rates were at double-digit levels in the 1960s and 1970s, 
and also in 1980. Saving a substantial portion of disposable personal income was considered 
to be important to individuals as a unit. Personal savings rates declined during the 1980s and 
1990s, although they remained at high, single-digit levels. Further declines in the personal 
savings rates occurred during the 2000s decade, with a drop to only 2.6 percent in 2005 before 
recovering to 5.6 percent by 2010.
Table 7.4
shows personal savings amounts in the United States in 2006, 2009, 2012, 
and 2015. Personal income rose from $11.4 trillion in 2006 to $15.3 trillion in 2015. Dis-
posable personal income also increased over the four time periods covered in Table 7.4. 
Individuals increased their personal outlays from about $10.5 trillion in 2009 to nearly 
$11.5 trillion in 2012. Personal savings increased in both 2009 and 2012 from the $331.4 
billion level in 2006. However, the amount of personal savings of $677.5 billion in 2015 
fell back to the 2009 level because personal outlays had increased more rapidly than dispos-
able personal income.
Table 7.4 shows that the personal savings rate was 3.3 percent in 2006 before increasing 
to 6.1 percent in 2009 and 7.6 percent in 2012, and then declining to 5.1 percent in 2015. 
Individuals as a unit seemed to have reacted to the 2007–08 fi nancial crisis and the 2008–09