Saving refers to the amount of income a consumer leaves after his / her consumption.
Hence, saving equals to income minus consumption.
Thus S = Y – C
Hence, like consumption, saving is also the function of income. Therefore, when someone spends less than his/her income on goods and services, this part becomes saving. Occasionally, we see that some people keep their saving with them duly locked up; this is known as hoarding. The hoarding does not give any material welfare or gain to the hoarder or to the society.
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Thus, if income increases, saving will also increase but not to the same extent. This is known as propensity to save or saving function. The ability to save depends on surplus income of the individual over its expenditure. The countries having higher level of income are having higher rate of saving and vice-versa. Hence total saving of a country depends on power to save and willingness to save.
We can explain the saving function with the help of given schedule and diagram.
In Fig. 3, we measure saving on the vertical axis and income on the horizontal axis. We know, saving = Income – Consumption, i.e.; S = Y – C. Hence, by plotting all the income-saving coordinates on Fig. 3 and joining them we get an upward rising saving function, with an intercept on the negative axis. This is also known as propensity to save. According to Keynes, saving function starts from negative axis and then slopes upward, because people generally dis-save when their income is nil and increase saving with the increase in income.
The rate of increase in saving must be less than the rate of increase in income.