Final answer:
Investment is the allocation of money to assets like stocks or real estate for potential profit, whereas saving is setting aside money for future use, often in secure accounts like savings accounts. The financial system enables the transfer of savings to facilitate economic growth. Risk and rate of return are key considerations in choosing where to save and invest.
Step-by-step explanation:
Investment and saving are two fundamental concepts in economics and personal finance. Investment is the process of allocating money to assets with the expectation of earning a profit, while saving is the act of setting aside money for future use. This can be further explained by understanding that investing often involves purchasing assets like stocks, bonds, or real estate with the goal of achieving a return on the investment through appreciation, dividends, or interest. On the other hand, saving refers to putting money aside, typically in a more secure and accessible place such as a savings account, where it may earn a more modest interest rate but is also less prone to risks compared to investments. The financial system plays a key role here, as it allows the transfer of savings to those in need of funds, facilitating economic growth. Moreover, people save and invest for various reasons, including for retirement, where assessing the risk and rate of return is crucial for making sound financial decisions.