Rainy days are here: consumers use savings to survive the cost-of-living crisis
Many people have been falling back on their savings to keep afloat in difficult financial times. With savings pots depleted, rebuilding these buffers is needed to protect them from future shocks.
Saving for a rainy day means consumers can be prepared for difficult times – with enough money put aside to pay for car or appliance breakdowns, to cope with unexpected changes to employment or health, and to meet rising living costs.
This year, World Savings Day – established on 31 October 1924 by the WSBI – comes at a time when the value of savings is crystal clear. Consumers have had many rainy days to contend with recently, having experienced years of back-to-back economic crises caused by Covid-19, war in Europe and the high interest rate and inflationary environment.
Dipping into savings buffers
While some saved more than usual during Covid, thanks in part to government support measures, but also given the limited options for spending on e.g. leisure activities, those funds have since been called on to meet increased energy, housing and living costs. Many are now finding that their carefully-built savings pots are running dry.
Early results from the European Consumer Payment Report 2023 – an annual survey of 20,000 consumers across Europe by credit management group Intrum – suggest consumers are indeed feeling the squeeze. More than a third (35%) have missed paying a bill in the last 12 months, and 43% of those said it was because they didn’t have the money to pay.
Some regions and countries are experiencing greater levels of default, with 46% of those in Northern European countries admitting to missing a bill payment, compared with 29% of those in Eastern Europe. In Greece, Norway and Switzerland, more than half of consumers said they haven’t paid at least one bill on time. In Portugal and Spain only one in five said the same.
When asked how they will cope over the next year, 40% predict they will be using their savings to cover day-to-day expenses and bills.
As a result, savings levels are down. A fifth (20%) of those surveyed have no savings at all and a further 17% have less than one month’s income saved – leaving more than a third (37%) with less than one month’s buffer. This is a significant change from 2022, when closer to a quarter (28%) of consumers had less than a month’s savings. Only nine per cent said they have more than a year’s income in their savings pot.
At a regional level, more people in northern and central European countries reported that they have no savings at all compared to those in southern and eastern Europe.
Savings form a key part of financial resilience and these buffers have enabled many consumers to continue to pay their bills during the last few years. It is precisely these unforeseen events that savings are designed to weather.Anna Zabrodzka-Averianov, Senior Economist at Intrum
Consumers losing hope for the future
While consumers have been putting their savings to good use in meeting the rising costs of living, limited potential to replenish their financial buffers in the near future is taking a mental toll. More than half (55%) don’t expect their financial situation to improve in the next 12 months, and they expect it to be another 18 months, on average, before high inflation stops having a material effect on their household finances.
Two in three say they cannot imagine ever becoming wealthy – no matter how much time and effort they put into working hard and saving more. To manage the impact of high interest rates and inflation, 60% predict they will cancel of reduce spending on a vacation or weekend trip in the next year and seven in ten say they’ll have to cut down on day to day expenses such as meals out and gifts.
It can be hard to save and it’s disheartening to see funds earmarked for holidays and gifts used for financial survival. Our survey suggests that consumers are feeling the strain of juggling their finances. It’s important that creditors understand these challenges and can offer flexible payments and forbearance when savings run out.Anna Zabrodzka-Averianov
Unsurprisingly, consumers using their savings to survive day-to-day have no spare cash to build their buffers for the future. Almost half (48%) say they will reduce the amount they put into savings in the next year and 29% will reduce their pension payments or retirement savings to make up for a shortfall in their household finances.
It is unfortunate that the current economic challenges reduce consumers’ ability to put money into savings, making them more vulnerable to future shocks. Clearly, it will take time to rebuild savings pots but World Savings Day is a good time to take stock and remember how important this is.Anna Zabrodzka-Averianov