Darius Imbras. Additional savings of 6 billion during the pandemic euros: who saved them and where did they end up?

Darius Imbras. Additional savings of 6 billion during the pandemic euros: who saved them and where did they end up?
Darius Imbras. Additional savings of 6 billion during the pandemic euros: who saved them and where did they end up?
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The growing disposable income of households and limited opportunities for consumption significantly increased the amount of money saved by the population. Savings rate – an indicator that shows what part of disposable income households do not spend on consumption – both in 2020 and 2021. was 3-5 times higher than the historical average. 1995-2019 the population did not consume a little more than 3 on average, and in 2020 – until May 14, 2021 – 10.9 percent earned disposable income. And only in 2022, when the economy experienced new challenges again, the indicator decreased to 4.8 percent.

A comparison of population consumption and income developments during and after the pandemic with pre-pandemic trends shows that in 2020-2021 Lithuanian residents accumulated 6.2 billion additional savings of EUR. Households could use the accumulated additional savings in various ways. It was possible to treat these funds as liquid financial assets, i.e. cash and deposits, to purchase other financial assets such as stocks or bonds, non-financial assets such as real estate, or to reduce financial liabilities, in other words, to repay loans.

Most of the additional savings accumulated during the pandemic were used by residents to purchase financial assets. The analysis carried out shows that during the first years of the pandemic, Lithuanian households accumulated most of the additional savings received as cash and deposits or invested them in financial assets. However, this behavior was slowly changing. in 2021 households kept a smaller and smaller part of the additional savings they acquired as cash or deposits and invested a larger and larger part of these funds in financial assets. The situation changed even more in 2022, when additional savings stopped increasing, residents also did not allocate additional funds to purchase more financial assets. And when inflation intensified, the population tended to use available cash and deposits to purchase non-financial assets with a lower risk of depreciation. in 2023 in the middle of the 2000s, Lithuanian households had directed almost all additional savings, which were previously held in cash and deposits, to other financial and non-financial assets. Almost three quarters of the available 6.2 billion EUR of additional savings is invested in financial assets, a fifth – in non-financial assets.

Most of the additional savings went to wealthier Lithuanian households. in 2023 in the middle, the richest tenth of households had more than 80% additional savings accumulated by all Lithuanian households, and 50% households with the lowest net assets received only 5%. Although in the first years of the Covid-19 pandemic, the additional savings of households with the lowest income accounted for twice the share of additional savings, but from 2021 onwards in the first half of the year, their share was slightly decreasing. From around 2022 Since the beginning of the 2010s, an increasing share of additional savings has been accumulated by households in the 6th to 9th deciles in terms of net assets. The increase in the share of additional savings of these households is mostly attributable to increased non-financial assets. A similar distribution of additional savings, with the majority of additional savings concentrated in the wealthiest households, was observed in both the euro area and the United States.

Use and distribution of additional savings by household net worth

Sources: VDA, ECB (distributive accounts of households) and calculations by the Bank of Lithuania.

This use and distribution of additional savings according to household net worth means that the impact of these savings on future consumption will be relatively small. The analysis carried out shows that additional savings in Lithuania are concentrated in the tenth of the richest Lithuanian households, which allocated them to purchase financial assets. Such a structure of additional savings is likely to have relatively little impact on households’ consumption decisions in the future. Economic studies show that when incomes increase, wealthier households increase consumption relatively less than households with less wealth. In addition, an increase in the value of illiquid assets, such as an increase in the price of stocks or bonds, has less incentive for households to consume than an increase in the value of liquid assets.

The article is in Lithuanian

Tags: Darius Imbras Additional savings billion pandemic euros saved

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