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If our economy is going to continue to expand, it is important that we are able to effectively manage both the savings and the level of investment.

National savings is made up of public savings and private savings. Public savings is defined as the accumulated unspent money of all levels of government. In Australia we operate with three levels of government – public savings is the combined available funds of the Federal government, plus the money held by both the State and Local governments. On the other hand, private savings is the accumulated unspent funds held by individuals and businesses. As you would imagine, this makes up the majority of national savings in Australia.

Savings are held in the financial sector. In order to hold savings in Australia, a business must be recognised as an authorised deposit-holding institution, or an ADI. These firms are overseen by the Australian Prudential Regulatory Authority. This is a government department that has been put in place to make sure that any funds deposited into the Australian financial sector will be secure – if people did not feel secure putting their money into a bank in Australia, then they might look to put their funds elsewhere. Given the significance of national savings to the Australian economy, this is a problem best avoided.

Investment is a very different thing. When we invest our money, we are hoping that it is going to be used to generate a profit. You will soon see that there are several investment options available to Australians.

It is worth taking the time to distinguish between two very similar terms. As you have just seen, investment is when your money is used to try and generate a profit. For example, you can invest in the sharemarket, or by purchasing property. On the other hand, investment spending is a term used to describe the action of purchasing capital assets. This is part of the aggregate demand formula – businesses engage in investment spending when they purchase new assets so that they can expand their firm.

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