One in Five Czechs Lack Long-Term Financial Reserves, Survey Shows

Almost one in five Czechs does not create a long-term financial reserve, according to a survey by Česká spořitelna, Europe in data and IPSOS, in which two thousand respondents aged 18 to 65 took part. At the same time, experts remind that a financial cushion helps to manage more difficult financial situations, such as the transition to retirement, job loss or long-term illness. Currently, 27 percent of respondents do not have a long-term reserve available at all.

The survey also revealed that 60 percent of these people, who do not have a long-term reserve, have already saved money in the past, but their financial situation has deteriorated so much that they have no money left for savings. Four-fifths of those who do not currently create a long-term reserve do so because their income is not high enough or their expenses are too high.

“This fits into the overall picture of the economic development of the Czech Republic in recent years, when unprecedentedly high inflation significantly increases the consumer spending of the population. At the same time, the development of wages is far from being able to copy this trend, and there is an overall real drop in wages, and thus in the incomes of a large part of the population,” explains Kamila Fialová, economist from the Institute of Sociology of the Academy of Sciences of the Czech Republic.

According to the survey, the situation of Czech households has worsened recently, and more and more of them find themselves in a situation where they have trouble covering their costs. “In April 2022, according to a survey by PAQ Research and Český rozhlas Život, 18 percent of households in the Czech Republic whose income was equal to their expenses and therefore could not save anything, and at the same time five percent of households whose expenses even exceeded their income, were unable to pay. This February, there were significantly more households without the ability to create regular savings, 24 percent, and the share of households with expenses higher than income also rose significantly, to nine percent,” continues Fialová.

On the other hand, a quarter of those who currently lack a long-term financial reserve are paying off their mortgage at the same time. Paradoxically, this can be seen as a form of savings, as real estate is a relatively safe form of investment.

Czechs have below-average savings in the EU

When it comes to international comparisons, the Czech Republic lags behind the EU average. According to Eurostat data, domestic households had an average of 187 percent of their disposable annual income saved in net financial assets in 2021. The average for the entire EU is 288 percent. Czechs thus have less savings than, for example, Germans, Austrians or Hungarians, on the other hand, they surpass many Eastern Europeans.

At the same time, however, Czech households save over 19 percent of their annual disposable income (income after deduction of all taxes, editor’s note), which is slightly higher than the European average. According to the experts, the problem is not that people in the country save little, but rather that they are faced with lower incomes than abroad. Some households are also able to save large sums in the long term, on the other hand, many save very little.

The ideal savings is two million

According to a recent analysis, Czechs have the most financial resources How do Czechs save for the future? they keep in current or savings accounts of individual banks. By the end of 2022, Czech households had more than 2.5 trillion crowns deposited in them, of which 1.5 trillion (60 percent) were in current accounts and the rest in various types of savings accounts.

Their popularity has increased with rising interest rates in the last two years. After the increase in interest rates, Czechs’ interest in term deposits also returned last year. Banks also responded to the demand, so the volume of domestic household deposits on term accounts increased by 68 percent between the end of September 2021 and the end of 2022.

Roughly half of the people save money every month, and the same half put aside a maximum of 3,000 crowns a month. Most often, Czechs save to maintain their standard of living in old age. Other goals include covering expenses in long-term unemployment or housing reconstruction. Nevertheless, a fifth of the respondents stated that they would save for the financial provision of their children’s studies and 12 percent for the purchase or construction of a house.

Even though people are trying to put money aside for the long term, most of them don’t have enough saved up right now. “36 percent of those Czechs who create a long-term reserve have less than 100,000 crowns saved, 18 percent even less than 50,000 crowns. Considering that this type of reserve is used to bridge a longer period without income or for large investments such as the purchase of real estate, it is a completely insufficient amount,” says Milan Mařík, Europe in data analyst.

Ideally, a person should have at least two million crowns saved for their pension. “Thanks to this, you will avoid a sharp drop in your standard of living in retirement. Most likely, people will spend between fifteen and twenty-five years in retirement, so if you have two million crowns saved, you can spend 100,000 per year from your savings, i.e. 8,333 crowns per month. And this amount will then supplement your pension from the state,” explains Monika Hrubá, customer experience manager at Česká spořitelna.

However, the majority of the population cannot afford such an amount. According to data, only four percent of Czechs of pre-retirement age (55 to 65) have more than two million in long-term reserves.

Money is on the “stove”

Of those who save for the long term, 34 percent save at least part of this money in a current account and 65 percent in a savings account. However, this causes a loss in the current situation, because above all, the current account does not cover even a fraction of inflation.

“Current or savings accounts for long-term appreciation are not ideal because of lower appreciation, but also for a relatively banal reason. Due to the fact that they are at hand, people often use them for something common that they need now,” Hrubá continues.

On the contrary, for example, 23 percent of people invest in mutual funds, which already represent a better option in terms of preserving the value of money. Almost half of the Czechs who save have also established supplementary pension insurance. Cryptocurrencies have gained popularity recently, as almost every tenth Czech uses them as a form of long-term savings. However, they also have their pitfalls, such as high volatility, i.e. fluctuations in their value.

Half of the people get by with an income with difficulty

In the current situation, approximately 15 percent of Czechs are unable to pay all payments without any problems, most often these are energy payments. These data are practically identical to the situation at the end of 2022. The share of those who have a problem with their monthly income has not changed either, still more than half of them (55%).

“People have gotten a little used to the current situation and are actively looking for ways to get money into the budget and to protect their resources from inflation. From a financial health perspective, it’s kind of two messages in one. People are more interested in understanding finances, having them well distributed, maximizing income and optimizing the types of products used. So, good news from a financial literacy perspective. From the point of view of real savings, it is worse, people are currently consuming savings and households have to manage with smaller resources,” concludes Hrubá.