Mobilizing our savings

THE recent passage of a law making life insurance more affordable for Filipinos is a welcome development for those who wish to invest in their future.

By reducing taxes on insurance premiums, Republic Act 10001 will enable more Filipinos to purchase life insurance – financially preparing them and their families in the event of unforeseen circumstances such as illness and death.

This legal measure is not only seen to increase the sale of life insurance, it is also expected to play an important role in savings mobilization.

Together with the recent passage of Republic Act 2505 or the Personal Equity and Retirement Account (PERA) Act, and Republic Act 9576 or the law amending the charter of the Philippine Deposit Corporation (PDIC), Republic Act 10001 helps create an environment conducive for saving.

I wrote in a past column about how the PERA Act will allow Filipino workers to prepare for their retirement by having a special savings account invested by professional fund managers.

Republic Act 9576, on the other hand, increased the maximum deposit insurance coverage from P250,000 to P500,000 as a preemptive response to the global financial crisis. More significantly, this has helped allay the Filipino depositors’ fears of losing their hard-earned savings and encourage them to save more in the bank.

So what is savings mobilization? It is how the authorities formulate and implement policies that urge us to prioritize investment over consumption.

To do this, we save our money in banks, insurance companies, or other financial institutions.

These institutions serve as channels for spurring economic growth through their lending to companies and enterprises that in turn generate more employment and other economic activities.

According to the PDIC, there is a need to raise the rate of investments to enable the Philippines to move toward a higher economic growth path. Investments, the PDIC says, require financing through savings generated from domestic and foreign sources. The PDIC notes, however, that foreign sources are unsustainable and increase the country’s vulnerability to international capital flight.

Thus, PDIC recommends that the expansion of domestic savings should be enhanced as a necessary condition to boost capital formation Mobilizing our savings and achieve sustained economic growth.

Savings are commonly understood as the portion of income left after deducting all expenditures and payment of liabilities for a given period. The money left is usually set aside and kept in banks to earn interest.

By investing our savings in banks, we are rewarded with “investment returns” in the form of interest. This is because our banks also invest the money we deposit in construction, housing, or business loans.

Through these loans, companies and businesses would have sufficient money to fund their activities – endeavors that would have a long-term effect on the economy.

Investing in a PERA account or in a life insurance would also bring about the same desired outcome: By investing one’s money in investment products, the life insurance company or the professional fund manager (in the case of PERA) would, in the long run, spur economic growth.

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