International Baccalaureate (IB) Practice Exam

A negative savings rate indicates that an individual is spending more money than they earn, which leads to accumulating debt. This situation arises when expenses exceed income, meaning that not only are there no savings being put aside for future needs or emergencies, but additional funds must be acquired, often through loans or credit, to cover the shortfall. This highlights a financial imbalance where the individual is not only depleting any existing savings but is also increasing their overall financial obligations. While the other options touch on aspects of financial situations, they do not accurately capture the essence of a negative savings rate. Having no savings at all might be a scenario someone experiences, but it doesn’t reflect the ongoing fiscal decision-making that results in a negative savings rate. A fully funded emergency fund speaks to having ample savings set aside for unforeseen circumstances, which is contrary to the concept of negative savings. Saving for wants instead of needs reflects prioritization in savings, but does not inherently involve the overspending that characterizes a negative savings situation.