Personal savings and insurance - Essay Example

me of the actions that necessitate precautionary savings include business risk, health risk, risk of labour income change, unavoidable expenditures, children’s educations, and savings for retirement (Carroll and Kimball, 2001). Life-cycle motive involves anticipation of the disparity between expenditure and income. This theory provides that consumers save a proportion of their income so they can have something to turn to in their elderly ages, when they are not able to raise income. In this view, individuals are chiefly motivated to save so they can accumulate for their retirement (Modigliani and Brumberg,1954).

Some consumers are motivated to save so they may enjoy interests or dividends that those savings may attract in the future. The group of people who save to enjoy interest, therefore, prefers saving where their savings can grow, such as in the stock exchange and banks. Independence motive is whereby consumers save so they can use their savings as a source of power to do their thing independently. They believe that their savings is fully theirs and hence they will not ask for approval from anybody when deciding what to do with it.

Furthermore, consumers are motivated by the fact that, when they have savings, they will not borrow from anybody or ask help from anybody each time they want money for consumption or investment. Enterprise motive is whereby the savings give investors freedom to spend the funds if and when necessary. As such, consumers find saving money as a way of empowering them economically since they can have capital to invest in viable projects whenever the need arises. Bequest motive is whereby savers put aside money so they can have adequate to inherit to their heirs.

The reason for this motive is to safeguard the welfare of their beneficiaries when the savers pass on. This motive, therefore, goes beyond personal interest as individuals think of how those who are close to them live after they dies. A good example is where a parent