ECONOMIC DEVELOPMENT

7
“SAVINGS, INVESTMENTS AND FINANCIAL SYSTEM”

MS. MARJORIE ROSE GUARINO

 NO. 7
Economic Development

SAVINGS, INVESTMENTS ANDFINANCIAL

SYSTEM

1. Identify the importance of savings, investment, and

financial system.

2. Ascertain some of the important financial institution in

the Philippines economy.
 NO. 7
Economic Development

What Is an Investment?

An investment is an asset or item acquired with the goal of

generating income or appreciation. Appreciation refers to an
increase in the value of an asset over time. When an individual
purchases a good as an investment, the intent is not to consume the
good but rather to use it in the future to create wealth. An
investment always concerns the outlay of some asset today—time,
money, or effort—in hopes of a greater payoff in the future than
what was originally put in.
 NO. 7
Economic Development

Significance
Investment is the value of machinery, plants, and buildings that are
bought by firms for production purposes.
Investment plays six macroeconomic roles:
1. it contributes to current demand of capital goods, thus it increases
domestic expenditure;
2. it enlarges the production base (installed capital), increasing
production capacity;
3. it modernizes production processes, improving cost effectiveness;
4. it reduces the labor needs per unit of output, thus potentially
producing higher productivity and lower employment;
 NO. 7
Economic Development

Investment plays six macroeconomic roles:

5. it allows for the production of new and improved products, increasing value added
in production;
6. it incorporates international world-class innovations and quality standards,
bringing the gap with more advanced countries and helping exports and an active
participation to international trade.

Within a country or a nation, economic growth is related to investments. When

companies and other entities engage in sound business investment practices, it
typically results in economic growth.
For example, if an entity is engaged in the production of goods, it may manufacture
or acquire a new piece of equipment that allows it to produce more goods in a
shorter period of time. This would raise the total output of goods for the business.
Taken in combination with the activities of many other entities, this increase in
production could cause the nation’s gross domestic product (GDP) to rise.
 NO. 7
Economic Development

SAVINGS

What are Household Savings (Individual)?

Savings refers to the amount left over after an individual's
consumer spending is subtracted from the amount of
disposable income earned in a given period of time. Savings
can be used to increase income through investing.
 NO. 7
Economic Development

NATIONAL SAVINGS
What are Household Savings (Individual)?
What people save, avoiding to consume all their income, is called
"personal savings". These savingscan remain on the bank accounts for
future use or be actively invested in houses, real estate, bonds,shares
and other financial instruments.

National savings are personal savings plus the business savings and
public savings. Business savingscan be measured by the value of
undistributed corporate profits. Public savings are basically tax
revenues less public expenditure.
 NO. 7
Economic Development

What Is a Deficit?
A deficit occurs when expenses exceed revenues, imports exceed exports,
or liabilities exceed assets. It is synonymous with a shortfall or loss and is
the opposite of a surplus. A deficit can occur when a government,
company, or person spends more than it receives in a given period, usually
a year.
What Is a Budget Surplus?
A budget surplus occurs when income exceeds expenditures. The term
often refers to a government's financial state, as individuals have
"savings" rather than a "budget surplus." A surplus is an indication that a
government's finances are being effectively managed. A budget surplus is
when income exceeds expenditures.
 NO. 7
Economic Development

FINANCIAL SYSTEM’S ROLE IN THE ECONOMIC

DEVELOPMENT
The role of the financial system is to gather or pool money from people
and businesses that have more than they need currently and transmit
those funds to those who can use them for either consumption or
investment. The larger the flow of funds and the more efficient their
allocation is, the better the economic output and welfare of the economy
and society. A healthy economy is dependent on efficient transfers of
resources from people who are net savers (surplus) to firms and
individuals who need capital.
 NO. 7
Economic Development

TYPES OF FINANCIAL INSTITUTIONS

1. Commercial banks are the major institutions that lend money,
handle checking accounts, and also provide an ever-widening range of
services, including stock brokerage services and insurance.
EX: BPI, BDO, PNB
2. Thrift Institutions - provide affordable and accessible financial
services to Filipino consumers, homeowners, and micro, small, and
medium enterprises. EX: BPI, BDO, PNB
3. Credit unions a not-for-profit financial institution that accepts
deposits, make loans, and provides a wide array of other financial
services and products. EX: Navy Federal Credit Union (NFCU)
 NO. 7
Economic Development

TYPES OF FINANCIAL INSTITUTIONS

4. Mutual funds sell equity shares to investors and use these resources
to purchase stocks or bonds.
EX:Sun Life Prosperity Philippine Stock Index Fund
5. Life insurance companies take savings in the form of premiums and
then invest these funds in bonds, stocks, mortgages, real estate and so
on, and then make payments to beneficiaries.
EX: Sunlife, BPI AIA, AXA, Pru Life UK
6. Pension funds are retirement plans obtain their funds from
employers and employees and administered generally by the trust
departments of commercial banks, or by life insurance companies.
EX: SSS, GSIS
 NO. 7
Economic Development

What Is a Central Bank?

A central bank is a financial institution given privileged control over the
production and distribution of money and credit for a nation or a group of
nations. In modern economies, the central bank is usually responsible for the
formulation of monetary policy and the regulation of member banks.
The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of
the Philippines. It was established on 3 July 1993 pursuant to the provisions
of the 1987 Philippine Constitution and the New Central Bank Act of 1993.

Although some are nationalized, many central banks are not government
agencies, and so are often touted as being politically independent. However,
even if a central bank is not legally owned by the government, its privileges
are established and protected by law.
 NO. 2
Economic Development

The ultimate resource in economic

development is people. It is people, not
capital or raw materials that develop an
economy.

Peter Drucker