World Savings Day – after the storm?

World Savings Day highlights the stabilising effect of savings on our economy and encourages people to prioritise their finances, but in the wake of the pandemic, how easy is this for consumers?

Although consumption is rising and savings rates decreased from the peaks reached last year, they are still far higher than pre-pandemic levels. In the first quarter of 2021, the household savings rate was 21.5 per cent in the euro area – compared with the pre-pandemic normal of 11-15 per cent.

However, if you drill beneath the surface of these figures, there is serious inequality beneath. As the pandemic divided the financial fortunes of consumers, with those in low incomes more likely to experience job instability and financial hardship, which is reflected in their savings patterns.

Low income consumers are struggling

In 2020, Intrum’s annual European Consumer Payment Report surveyed more than 24,000 European consumers and found that 76 per cent are still able to save each month, similar to 2019. However:

  1. 56 per cent are dissatisfied by the amount they are able to put away

  2. Only 14 per cent are saving more than they were before the COVID-19 crisis

  3. 43 per cent of those on low incomes are saving less than they were before.

Higher income households have benefited far more from the financial side effects of the pandemic. Faced with stable incomes but decreased opportunities to spend their money in areas of leisure and travel, they have been able to add to their savings pots.

On the other side of the spectrum, some have needed to borrow more to pay their bills, with 61 per cent doing so each month, far higher than in 2019 when this figure was 52 per cent.

While excessive precautionary savings are also disruptive, overall moderate and sustainable savings’ levels are good for individuals and good for the economy and it is worrying to see the disproportionate effect the pandemic has had on low-income consumers
Anna Zabrodzka, Senior Economist, Intrum

Long term savings picture worrying

The longer term implications of this are significant, with some groups of consumers less able to save for the future. In fact, more than half of Europe’s consumers say they are worried they won’t be able to afford a comfortable retirement. While across the EU there are compulsory public pensions, the pattern of an ageing population with falling birth rate is putting a strain on those pay-as-you-go retirement systems, especially for poorer countries facing bigger challenges. Therefore, in order to ensure a comfortable retirement, it is becoming important for people to also invest in private retirement schemes.

“While excessive precautionary savings are also disruptive, overall moderate and sustainable savings’ levels are good for individuals and good for the economy and it is worrying to see the disproportionate effect the pandemic has had on low-income consumers,” says Anna Zabrodzka, Intrum’s Senior Economist.

Anna Zabrodzka, Intrum’s Senior Economist.

“The focus on short-term savings, which can be used in an emergency, is important – we speak to 250,000 people in debt every day and many customers need extra support at the moment. However, the long term savings implications are also critical if people are to be able to save for a comfortable retirement, outside the regular pension savings. Our research shows this is a real source of anxiety for many.”

However, there is hope. “We see that customers are placing greater emphasis on financial literacy – many say that the pandemic is their motivation for this. This is a good sign, especially in light of recent acceleration in inflation and the pressure it has on the interest rates, in particular after years of extremely low borrowing costs. It is therefore important that financial services firms, policymakers and educational institutions back this trend by playing their part in providing support and guidance.”