Have you ever wondered why most people prefer to save their money than invest it? Is it due to ignorance? Or maybe because of risk aversion? Whatever the reason, in this article we will try to discover it.
The first thing we have to do is conceptually differentiate both terms. On the one hand, saving means saving our money in a “safe” place to dispose of it in the future, when necessary. Generally saving does not return any profit and, if it does, it is very little in relation to other options. On the other hand, investing means keeping our money in a “not as safe” place as savings, but with the hope that in the future that investment will bring us a profit that is much greater than the risk we have assumed to invest.
Once the terms are differentiated, we will concentrate on knowing the main causes for which people prefer to save rather than invest:
Ignorance: Most people do not know the different investment options available in the market and not only that, there are many people who do not know what investing means. This does not usually happen with savings, since most people have at least a minimum idea of the meaning of savings, either because they were instilled in their family since childhood, saving on their piggy banks, for example, or because the Banking is mainly focused on the promotion of savings and not on investment.
Risk aversion: People regularly prefer to bet on insurance. Everything that involves taking a risk, no matter how small, generates doubt, uncertainty and fear. In the case of savings, the risk acquired is null or almost nil, but so is the level of profitability obtained. On the other hand, investing is riskier, but with a greater probability than saving profit. For people it seems to be more important to keep what they already have than to make it grow.
Little liquidity: People always prefer to have their money available in the shortest possible time, which is possible through savings, but not in investment, in most cases. For example, in a savings account you can dispose of your funds when you need it; However, in a long-term investment you can dispose of your resources after a certain period of time, during which time the money is multiplying and earning interest.
Little control of expenses: Sometimes it is notorious that people choose the way of saving because they know that by always having their money available, they can use it for their expenses, even for those that are not emergency and strictly necessary. On the other hand, if the money is invested it is guaranteed at least that people will not be able to misuse their resources using it in unnecessary expenses. For example, if you have saved money for a while, but you are faced with a situation where you must make use of these funds and that does not really represent a forced discharge, you will surely do so because you have the necessary funds to do so; instead, with an investment, even if you want, you could not do it, or at least not immediately.
Lack of personal planning: The fact that people are not clear about their personal and financial objectives prevents the planning of resources to achieve them. The most important variable in this planning should be time, given that, as we mentioned earlier, the availability of money in savings is immediate, while not in an investment. For example, if our personal objective is the purchase of a house and, since I do not plan my resources, I opt for the way of saving, I will be 5 or more years accumulating money without generating profits; However, if I opt for the long-term investment path, I could be accumulating the same amount of money as with savings, but with a profit margin that will make it possible for my money to multiply and shorten the time to buy the house . Another example could be your retirement project: if you are around 35 years old and regardless of whether or not you quote a pension fund you want to have money available to live a comfortable retirement, it would be better to invest money from now so that when the time comes not You only have the amount invested, but also the returns obtained from it.
Definitely the reasons why a person decides to save instead of investing can be varied. We can go from not knowing what it really means to invest to the faint planning of resources to achieve personal and financial goals. The supremacy of savings over investment is notorious; However, to make good financial decisions it is important that you inform yourself, that you know your acceptable level of risk, the liquidity conditions you need, that you control your expenses and that you plan your personal goals.