What would happen to the economy if people saved their Money?

Question

What would happen if ppl never spent much and only saved their money and shoved it in ISA accounts and so on. and let their money grow in interest accounts

Answer 1

Well, the economy would crash.   :)

If no one is spending money outside of the essentials, businesses that sell non-essentials would go out of business, and the overall GDP would drop.

The economy has grown massively over the last 25+ years, because spending has increased tremendously.  A decrease in spending will lead to a depression.

Answer 2

gee, 3 sorry answers so far.

With inflation being higher than savings and investment rates, this means those who "save money" become poorer.  They are also blessed with paying taxes on unreal "profits".

If people so save money, their bank lends the money to others who want money to spend.  So the money still goes from wallet to wallet, and despite the pundits, it doesn't affect the economy enough to bother with.

Answer 3

Savings are good for the economy as long as they are placed in accounts and not stuffed into mattresses.  Increased savings in banks and other accounts cause lenders to have more funds available for loans.  Banks must lower interest rates to encourage more borrowers, just like any business that has excess inventory (money on hand) will lower prices (interest rates) to attract customers (borrowers).  

Lower interest rates and increased business borrowing increases business capital spending.  The businesses can now afford those expansions / upgrades they have been wanting.  Business spending lifts the whole economy.

Answer 4

In addition to what slowtyper said, a high savings rate generally corresponds with a trade surplus (or at least less of a deficit.)  If people are saving more, then they aren't consuming as much (fewer imports), but they are still producing quite a bit to get the money to save.  The production goes abroad as exports, thus improving our terms of trade.