With low rates of personal savings becoming endemic, ‘earmarking’ your funds can be a helpful money-management strategy.
There is widespread concern about declining savings rates amongst consumers around the world. Indeed, the problem defies boundaries, ranging from sophisticated western economies with a high prevalence of consumer credit to more traditional economies in rural areas of the developing world, where banking infrastructure is almost nonexistent. Record numbers of personal bankruptcies and delinquencies have been reported in North America, while observers have commented that the rural markets of India and China will only emerge as a force if these consumers learn how to manage their money.
The planner gave each participant their target savings amount, and said that the social worker would help put aside this amount each week in sealed envelopes. Participants were free to open those envelopes if needed, but it was emphasized that, ideally, they should keep the envelopes closed. It was emphasized that if participants had to open the savings envelopes for non-discretionary expenses, they should try and draw only as much as they actually needed and put the rest back.
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[This article has been reprinted, with permission, from Rotman Management, the magazine of the University of Toronto's Rotman School of Management]