Contract savings play a crucial role in household budgeting, which is geared towards long-term goals: buying a home and important consumer durables, protecting against emergencies and providing for a comfortable retirement. The components of contract savings have certain distinctive features that appeal to different types of savers. For example, insurance protects against accidents, while mortgage or installment debt payments allow the consumer to enjoy the benefits of certain goods before fully owning them. Many people prefer the discipline of being forced to set aside certain amounts on a regular basis; In addition, pension funds and other forms of employee savings often benefit from employer contributions. The main financial variable that determines saving is the structure of interest rates, although asset prices, valuation and liquidity, interest-free credit conditions and other financial variables inevitably have an impact on the components of saving. Demand for a particular type of financial asset or savings component relative to the total is likely to depend primarily on its comparative performance. Comparative performance would refer to both the present value and the expected future values of these variables. The form and act of saving are important to finance economic growth. Budget-based contractual savings institutions can play an important role in the mobilization and efficient use of domestic resources in developing countries. From: Contract Savings in an Economics Dictionary » The total financial savings of private households can be divided into discretionary savings and contractual savings. Discretionary savings are held in the form of financial assets with varying degrees of liquidity; These include claims on the banking system (currencies and deposits), claims on the public sector (government bonds) and claims on the private sector (shares and bonds). On the other hand, contractual savings are long-term savings that include a definitive and continuous commitment on the part of savers.
These savings can take the form of insurance premiums, pension fund and pension fund contributions, and principal payments on mortgage debt. Another reason to focus on the growth of contract savings institutions is that they are an important type of “savings-oriented” institutions. These institutions specialise in creating financial instruments that meet the needs of different savers in terms of safety, liquidity and profitability. In many developing countries, activities appear to focus more on “investor-oriented” institutions such as development banks, which are primarily concerned with the allocation of funds made available to them mainly by Governments and international institutions. Policymakers in developing countries trying to mobilize private domestic savings would do well to make more concerted efforts to promote “savings-oriented” contractual savings institutions. It would therefore be preferable to promote contractual savings institutions first, which would encourage the household sector to increase its indirect savings. The creation of institutional and professional investors would also help to develop the environment conducive to the growth of stock markets. The priority given to indirect personal savings by financial institutions is now more pronounced in developing countries than in developed countries during their early stages of development, in particular because of the different socio-economic structures.
The emphasis on mobilizing small savings, which is clearly expressed in the policies of many developing countries, also indicates a preference for indirect savings by financial institutions. Governments may be willing to encourage the growth of social security institutions, which are often used as a kind of fiscal instrument. It would also help to meet the demands of workers and trade unions, which have become increasingly important in developing countries in recent years. Fiscal policy is an integral part of the Government`s economic policy with regard to resource mobilization and allocation. Fiscal policy variables consist of two broad categories, namely those dealing with public saving and investment and those influencing private saving and investment. The first includes fiscal measures such as tax increases and spending cuts that lead to an increase in public savings. The most important fiscal variable that influences private saving and investment is interest rate policy. Other factors include the creation of financial institutions such as insurance companies, pension funds and mutual funds that provide satisfactory financial instruments for savers and investors in terms of safety, profitability and liquidity. This article briefly examines the role that contractual savings can play in the development of the financial structure. The household sector is the main contributor to investment financing in developing and developed countries. But our knowledge of the variables that determine both the amount of household savings and their use is poor. .