There is reason to hope that one of the trends of 2024 will be the return and strengthening of the savings habit, says financial expert Jelena Novak.
Savings offset inflation
The money saved by citizens is the main resource that helps offset the high inflation of the previous two years. The survey conducted in Latvia shows that 28% of the population has started to spend their savings, and this spending is linked to both inflation and the population’s desire to invest money. Sometimes reserves are used to pay off liabilities faster. Basically, those who spend savings are young people (18-35 years old), who have saved for a relatively shorter period of time and had less initial capital. It is worrying that more than a fifth of people do not save, while 15% of savings would be enough for no more than a month. For about a third of the population, the level of savings would allow them to offset expenses for three months or more.
A third feel stable and expect an increase in income
How financially stable do people feel right now? According to the “Financial Security Index” survey conducted at the end of last year, 39% of people are dissatisfied with their financial situation, while 35% rate it as good overall. About a quarter (24%) of people have a neutral rating, most of them are residents aged 50 or older. 12%, however, are very dissatisfied.
When assessing how the financial situation will change this year, 41% of people admit to an increase in expenses, while 28% are optimistic that their income will also increase. The number of pessimists regarding income is 17%, while 14% hope for a decrease in expenses. 30% believe expenses will remain unchanged, while 39% expect no change in income.
Deposit rates are rising, but deposits are lagging
Last spring, banks began to significantly increase rates for various types of deposits (for example, the rate for a one-year time deposit in our bank is currently 3.7%). However, last year only around a third of our customers transferred their free funds to savings accounts and time deposits, while the remaining free funds are still held in ordinary accounts, so the possibility offered by banks to increase the capital. In general, according to data from the Bank of Latvia, the growth of time deposits and similar deposits was also very slow at the end of last year.
Most likely, saving and saving money is not so good, because during the long period of the so-called negative rates, people have lost the habit of transferring money to a profitable deposit, but very young people have not had such experience at all. It can be expected that this year we will see that part of citizens’ free funds will shift towards financial products with higher returns, including investing money in financial markets. Furthermore, taking into account the expressions of the European Central Bank and market expectations, this year we can expect a decline in rates, so it can be said that there is still a good opportunity to take advantage of the higher value of deposit rates.
Higher interest rates represent a good opportunity not only to earn using free funds, but also to create a valuable habit: gradually accumulating money for the next unpredictable moment of crisis.
2024-01-14 10:30:00
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