By definition, saving is the portion of income that economic agents set aside for future use, in anticipation of expected or unexpected expenses, situations of need, or for potential investment. Financial education ensures that we can make responsible financial decisions at all times. And it is in saving where this is most clearly materialized.
COVID-19 has forced Spanish households to reduce their consumption and postpone investment decisions. The Bank of Spain estimates this saving, which some refer to as ‘forced,’ at more than €30 billion. A volume of accumulated funds that could guarantee a rapid recovery in spending once the health situation improves and allows for mobility. Or perhaps not entirely if the health crisis has modified households’ saving culture.
At the worst moment of the financial crisis a decade ago, the household saving rate never exceeded 12.5% of disposable income, remaining at average levels of 5%, well below the levels observed in Europe. During the third quarter of 2020, the latest available data, the rate exceeded 15%. This sharp increase in saving in Spain is similar to that recorded in other countries during the same period. Beyond measures to combat the virus such as social distancing and mobility restrictions, which hinder travel and other leisure expenses, there are factors weighing heavily on household decisions, such as the high uncertainty about when the coronavirus will be overcome and what consequences it will have on our future lives. The situation we are experiencing is too dramatic not to leave its mark and not to fear that other exceptional events may recur in the future.
Despite the recent increase in their saving rate, households continued to need bank financing for their investments, although barely a third of the amounts requested a year earlier. The banking sector has made it possible for the Spanish economy to maintain a financing capacity of 1.5% of GDP in a context of strong private and public debt resulting from the disease. Since the beginning of the crisis, extreme monetary and fiscal measures have been taken that in most cases have required the collaboration of banks, which have made them possible efficiently.
The financial scenario facing a saver at this time is not easy at all. The financial repression resulting from negative official interest rates and the greater vulnerability of financial markets as a consequence of extreme monetary policy measures represent a handicap when it comes to generating returns on a financial cushion that can serve as support in the future. People’s economic situation can change very quickly and we must be prepared to respond to these changes. Financial education is essential for navigating a world as complex as today’s. And certainly, having the best possible professional advice is also essential.
Deposits were the financial asset chosen by Spanish households to materialize the increase in saving, both in Spain and in Europe. Even governments are increasing their deposits in banks. The return obtained from deposits is low, although what is truly important is that European institutions are generally acting as a containment wall for their clients, preventing them from suffering the penalty that the European Central Bank (ECB) applies to bank deposits at the issuing institution. In an environment of negative official interest rates, officially justified by the need to mobilize saving toward consumption, it is striking how private agents end up deciding to increase their saving and favor precisely the assets of greatest confidence and security, such as deposits. The clearest alternative to these is public debt, which registers negative or almost zero returns almost universally.
The ECB defends the need to be persistent on the chosen path, although it also admits that maintaining a monetary policy as expansive as the current one may make it less effective over time and generate negative effects and distortions that must be assessed. Hence the need for monetary policy to yield the leading role to other measures, such as structural supply reforms and fiscal policy to reactivate the economy and generate greater certainty about the future for economic agents.
José Luis Martínez Campuzano, Spokesperson for the Spanish Banking Association
