economics Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and intera ...

, forced saving occurs when the spending of a person is less than their earnings, due to the

consumer goods A final good or consumer good is a final product ready for sale that is used by the consumer to satisfy current wants or needs, unlike a intermediate good, which is used to produce other goods. A microwave oven or a bicycle is a final good, but ...

shortage In economics, a shortage or excess demand is a situation in which the demand for a product or service exceeds its supply in a market. It is the opposite of an excess supply ( surplus). Definitions In a perfect market (one that matches a sim ...

s which can cause

hyperinflation In economics, hyperinflation is a very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase. This causes people to minimize their holdings in that currency as t ...

. Forced saving can also happen when available goods are too expensive, therefore a person who has no access to credit has to accumulate the money for their purchase over an extended period of time. Definition of forced savings
at the ''

Financial times The ''Financial Times'' (''FT'') is a British daily newspaper printed in broadsheet and published digitally that focuses on business and economic current affairs. Based in London, England, the paper is owned by a Japanese holding company, Nik ...

'' lexicon Forced saving holds a major role in describing how expansionary monetary policy in turn can cause artificial booms. Unlike saving money, forced saving is involuntarily decreasing present consumption, whilst saving money is voluntarily lowering present consumption for an increase of consumption in the future.

Examples

Example of the first mentioned situation could be forced savings of households caused by massive consumer goods shortages in Russia during 1991. Net forced saving ratio of households during year 1988 was estimated around more than 40%. The other situation could be rising costs of real estates and mortgages. Because of mortgage market regulations one does have to possess enough savings in order to apply for mortgage which leads to long term forced savings for many households amongst all Europe.

Forced saving ratio

We can define forced saving ratio which measures how much of household savings is composed by forced savings. "net" forced saving ratio = ''(shortage effect + demand spillover effect)/savings rate'' "gross" forced saving ratio = ''shortage effect/savings rate'' ''Net forced savings ratio'' considers that

informal economy An informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government. Although the informal sector makes up a significant portion of the economies in developing countrie ...

role under shortage conditions.

Consequences

Forced saving results in many faults and consequences. Two main problems can be distributional effects, and also recessions. • Distributional Effects Forced savings encounters problems with distribution effects as it can result in uncertainty in who receives the money that is entering the economy, and also unease about who will receive more purchasing power and who does not. •Recessions The problem of having a recession can occur through forced savings through the use of investment. Some investments can result in being funded from the ‘forced’ savings which can cause problems. Over time, these investments will be seen to be errors and the liquidation process that occurs is what will in turn lead to a recession and a boom bust period cycle.

References

Intertemporal economics {{econ-term-stub