Explanation:

- A's original savings = 35% of income (100% - 65% expenditure).

- Income increases by 20.1%, so new income = 120.1% of original income.

- Expenditure increases by 20%, so new expenditure = 78% of original income (65% x 1.2).

- New savings = New income - New expenditure = 120.1% - 78% = 42.1% of original income.

- Original savings were 35% of income.

- Savings' increase = New savings percentage - Old savings percentage = 42.1% - 35% = 7.1%.

- Percentage increase in savings = (7.1% / 35%) x 100% = 20.3%.

- This matches Option 2: Increase by 20.3%.