Question

Explain the mutual relationship between expenditure and savings and throw light on its social importance.

Hint:

“Spend wisely and save regularly” — Savings ensure future security while expenditure fulfills present needs.

Answer 1

Step 1: Introduction.
Income of an individual is generally divided into two parts: (i) Expenditure, and (ii) Savings. The balance between these two determines the financial security of a person and the flow of money in the economy.
Step 2: Mutual Relationship between Expenditure and Savings.
1. Expenditure and savings are inversely related – when expenditure increases, savings decrease, and vice versa.
2. If income is fixed, a person has to maintain a balance between current needs (expenditure) and future security (savings).
3. Higher savings reduce current consumption but provide funds for future investment.
4. Excessive expenditure may lead to very little or no savings, creating insecurity.
Step 3: Social Importance of Savings.
1. Capital Formation: Savings of individuals, when deposited in banks, help in capital formation which promotes industrial and economic growth.
2. Economic Stability: Adequate savings act as a buffer during economic crises and ensure stability in society.
3. Social Security: Savings provide financial protection to families during emergencies like illness, unemployment, or old age.
4. National Development: Collective savings of society are utilized for building infrastructure, industries, and welfare projects.
Step 4: Conclusion.
Thus, expenditure and savings are two sides of the same coin. A proper balance between them ensures individual financial security and contributes to social and economic development.