Question

Which best explains why some people are more strongly motivated to save money than other people?

Answer 1

Motivation to save money depends on personal preferences, behavioral economics influences, and future income expectations. Automatic enrollment in retirement plans increases savings, while the expectation of Social Security may decrease personal savings.

Step-by-step explanation:

The motivation to save money varies among individuals due to a combination of factors, including personal preferences, behavioral economics, and future income expectations. Some people prioritize current consumption over saving, while others aim for a lavish retirement or desire to leave a legacy for their descendants. Personal preferences can cover a broad spectrum, with both savers and spendthrifts found across age groups and income levels.

According to behavioral economics, the choices in how savings plans are presented can significantly influence savings behavior. For example, automatic enrollment in a 401(k) plan significantly increases participation compared to requiring employees to opt-in manually. This indicates that defaults play a crucial role in the act of saving.

Anticipated future needs also drive saving behavior. When individuals perceive their future income to be less than their present income, they tend to save more. Conversely, if mechanisms such as Social Security give the impression of future financial security, they might save less, affecting the overall supply of financial capital in the markets.

Answer 2

Some people have different viewpoints on what constitutes "risk" and they see the future in varying degrees of such. Some people worry that there may not be enough money for themselves or their families in the future, so they want to ameliorate this risk by saving up now, while others see less risk in not having funds in the future, so they are less likely to want to save at present.