“You won’t lose a penny, you won’t get to the lat!” is a household proverb that we use to briefly and succinctly depict the basic principle of the hoarding culture. Saving is important not only for our individual well-being and financial independence, but for the economic stability of society as a whole. The development of the saving habit is influenced by many different factors, both external, related to the general welfare of society, political, economic and tax system, and very individual, where personal motivation and habits are important. From time to time, various currents arise in society, which call for living for today and not thinking about tomorrow, and do not promote the formation of saving habits, however, bank data show that the situation is gradually improving.
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The annual growth rate of private savings even reached 17% in some months of 2020, but in the spring of this year, under the influence of high inflation, it increased by only half a percent. What is the basis of the hoarding culture and have we developed it sufficiently?
You have to find motivation within yourself
Historical experience plays an important role in the formation of saving habits. A part of the society still remembers the monetary reform after regaining independence, when savings lost part of their value or money disappeared in the bankruptcy of several banks, as well as the economic crisis of 2008, before which we had managed to live beyond our means. The negative historical background makes many cautious, and a large number of people still keep their savings in cash so that funds are available quickly, or do not save at all – they live for today.
The general level of well-being is also important – the wealthier the society, the more resources for savings. If the society will not be able to satisfy its basic needs and live “paycheck to paycheck” without even spending excessively, then even with the best will, there will be nothing left for tomorrow.
Culture is also important. Research shows that in cultures with more pronounced collectivism, saving habits are more related to saving money for a common collective goal and the desire to fit into a larger collective. While in cultures with a more pronounced individualism, hoarding is associated with highly individual desires and needs, therefore a much stronger personal motivation to hoard is important. We are primarily individualists, so motivation must be found primarily within each individual, and educating and informing society is essential.
The trend is positive, but we are still lagging behind
Over the past 10 years, awareness of the need for savings has increased. The amount of deposits is growing, the number of persons participating in the 3rd level of pensions is increasing, the volume of problematic loans has stabilized. It is true that last year’s rapid inflation and the increase in the price of energy resources had a negative impact on the amount of savings, as part of the population had to compensate the rising cost of living from savings, but this is also the main essence of savings – to protect against economic shocks, preventing them from falling under the yoke of debt. According to the data of the Financial Industry Association, at the end of last year the total amount of savings of Latvian citizens in commercial banks was around 11.6 billion euros, but the savings at the beginning of this year decreased.
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Comparing the data of the survey conducted by Luminor in March this year with the answers of the respondents in the survey last December, savings in winter decreased the fastest, or by 16%, for seniors aged 60 to 74 years and residents aged 30 to 39 years – by 9%. At the same time, according to the data of the Credit Information Bureau, the amount of communal debtors did not increase last winter, this was possible thanks to both state support and personal savings.
Data from the Organization for Economic Cooperation and Development (OECD) also show that the situation with savings in Latvia has significantly improved, but we are still below the EU average. In 2021, on average, EU households saved around 10.3% of household income, but in Latvia it was 5.9%. The leading countries are mainly Western countries, while the worst situation with savings is in the south of Europe – Greece, Portugal. The Luminor survey shows that currently a third of Latvian respondents (32%) do not have savings, because there are not enough funds to save something, and this is still too large a part of society.
A multifaceted approach is needed
Hoarding is a habit. Building a solid savings culture requires a multifaceted approach. This is facilitated by economic stability, promotion of financial knowledge and skills, various economic incentives such as tax incentives. Developing this habit should start already in adolescence, promoting financial discipline, improving financial literacy and developing a proactive approach to money management. However, the biggest motivation is our own goals and dreams, and everyone has them. Defining and fulfilling them is a powerful incentive to build savings and create a habit. Various financial products that conveniently and efficiently help you save are also of great importance, for example, automatic payments to pension level 3 or to a savings account. We are on the right path, however, the destination, when we can safely say that our society is financially stable, is still quite far away.
2023-08-08 21:04:02
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