Question

Discuss the advantages and disadvantages of savings or thrift plans, especially considering different employee ages and income levels.

Answer 1

The advantages of savings plans for employee of different ages and levels are elaborated below.

1. Savings plans help to save a certain amount of money for the purpose of long term financial planning goals. While this may not seem too high an amount in the beginning, however in the long term it definitely adds up to a lot of money.
2. Savings plans also help you to generate returns on your idle savings. Thus it helps in beating inflation and also generating returns. The effect of compounding would act and help you to generate better ROI as compared to your money being spent off on unnecessary things.
3. Savings plans reduce your mental burden of having to save aside your money and act as a deterrent for spending too much. Savings is an integral part of your financial planning.

Savings plans would help young earners when they save as the compounding effect is better for them. They are able to save more owing to less responsibilities. However over a long term as age increases, the saving me be less or more depending on the responsibilities and hence expenses. It is recommended to create a saving habit right from the start.

Disadvantages

1. While there are no disadvantages as such, the disadvantage can be not selecting the proper saving plan for your own self.
2. Time value of money can be a factor. This means that if you postpone buying something and your investment/saving may not generate the ideal return, and the price of the object may appreciate, you could not buy the thing as also you could not get better returns. Thus there is an opportunity cost which you have to bear.