contractual savings

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Savings made on a regular basis in conformity with a contract. This could be via life insurance policies, or a repayment mortgage. Individuals may adopt these forms of savings as a method of self-discipline. They have the disadvantage that escape from the contract generally involves financial penalties; this may give trouble if income falls, for example through unemployment, or if special needs arise. Continuing with contractual savings does not necessarily mean that an individual is a net saver, as they may be financed by running down other assets, or getting into debt via personal loans or use of credit cards.

Subjects: Economics.

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