Not every dollar earned gets spent. What is left over, after consumption, is savings. It can sit in a bank account, go into a retirement fund, buy stocks or bonds, or be stuffed under a mattress. Economists care about savings because they fund investment. A country that saves a lot can build factories, roads, and schools without borrowing from abroad. A country that saves little must rely on foreign capital, which can be withdrawn suddenly.

Households save for many reasons. Retirement is the biggest. A rainy day fund covers emergencies. A down payment on a house requires years of setting money aside. Some people save out of habit or caution. Others spend every paycheck and borrow when they need more. The personal savings rate in the United States hovered around 5 percent before the pandemic, then spiked to over 30 percent during lockdowns, then fell back.

Savings can be too high. If everyone saves and no one spends, demand collapses and the economy stalls. This paradox of thrift, as Keynes called it, is why governments sometimes encourage spending during recessions. But over the long run, savings are essential. Without them, there is no capital to invest, and without investment, there is no growth.

Savings vehicles

• Bank savings accounts
• Retirement accounts
• Stocks and bonds
• Real estate
• Cash holdings