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Savings in Developed vs. Developing Countries

UK students often take jobs during their holidays and some save part of their income to pay their tuition fees. UK graduates earn, on average, £8500 a year more than non-graduates. Economics graduates had the second highest average earnings of all UK graduates in 2016. The top 10% of economics graduates earned £115 000 a year.

Discuss whether or not people in developed countries are likely to save more than people in developing countries.[8]

Category:

Economic Growth and Development

[CIE O level November 2018]

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Answer


Step ➊ : Introduce

The amount of money people save is likely to be different in developed and developing countries. Developing countries are characterised by low per capita income and poor and standards of living. Examples include Brazil and Chile. By contrast, developed economies have a high GDP per capita and widespread access to goods and services, and thus a high degree of economic prosperity. The UK is an example of a developed country. In this essay, we will discuss whether or not people in developed countries are likely to save more than people in developing countries.


Step ➋ : Discuss why people in developed countries will save more than people in developing countries.

There are several reasons why people in developed countries are likely to save more than people in developing countries.

On average people in developed countries have a higher income and are able to save larger amounts so that they may gain a higher interest rate. In less developed countries, people tend to have lower income than average. They may spend most of their earnings on basic necessities such as food and clothing. There is not much money left to save.

There tends to be a greater range of financial institutions in developed countries. Banks are available in all areas and there are also systems of online banking. This gives greater confidence in saving. In developing countries, there is poor infrastructure. Banks may be a long-distance away and there may not be adequate internet networks for online banking.

Inflation rate may be lower in developed countries. This enables people to save more of their income. A high inflation rate in less-developed countries discourages savings. For instance, if the rate of interest does not rise in line with inflation, borrowers will gain and lenders (savers) will lose. This is because borrowers will pay back less in real terms and lenders will receive less.

People in some developed countries may have a culture of saving, for example in Japan.


Step ➌ : Discuss why people in developed countries do not necessarily save more than people in developing countries.

There are several reasons why people in developed countries are less likely to save more than people in developing countries.

In developing countries, people may be encouraged to save more for their old age, retirement and future health problems. This may be because of a lack of a developed welfare system. Furthermore, people in developing countries may save more to spend on higher education to increase the opportunity to work abroad.

There may be high economic growth and a high level of confidence economic prospects in some developed countries. People are confident that they will stay in employment in the future. This encourages relatively higher spending and there is a fall in the savings ratio.


Step ➍ : Conclude

To conclude people in developing countries are more likely to save a smaller proportion of their income compared to developed countries. This is mainly because the majority of people in developing countries earn a much lower income and need to spend most of their income on basic necessities. There may however be some situations where people in developed countries save less in comparation, for example, due to high economic growth and confidence

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