April was amazing! From both an income and expenses point of view, I was able to achieve my best result in months. The Belgian government played a huge part in this. Of course, cutting expenses helped a lot as well giving us this splendid SR. Or am I cheating a bit?
Last Updated on December 22, 2020 by Mr. FightToFIRE
There is a famous saying that money can’t buy you happiness. That may be true, but having money sure can help in gaining happiness. If there is one thing that the corona pandemic has shown us, is that saving for a rainy day isn’t such a bad idea. It can prevent a lot of unhappiness.
It is also no secret how we feel about ourselves and the world, in general, is connected to how much money we have, and savings play a big part in that.
Can saving money make you happy?
A 2018 survey carried out by Dutch bank ING, shows that there seems to be some connection between savings and people’s happiness. In this survey, 57% of respondents all over Europe replied either “yes,” or “most of the time” when asked if they felt happy. Only 10% of the respondents said “no” or “rarely,” and 32% said “sometimes.”
Of the group responding they were “happy”, 47% said they were “comfortable” with their savings level. Those answering they were “happy” sometimes and those who said they were “unhappy” were more uncomfortable with their savings level.
With only 21% and 13% of them prospectively being comfortable with their savings, it seems that the amount of savings available can contribute to happiness.
In the first quarter of 2020, the household saving rate in the Eurozone was that an all-time high of 16%, while the housing investment rate was down at 8.7%.
In this article, we’ll look at savings in the Eurozone area, and the top savers in Europe in 2020. Before we go into that, however, let’s look at savings and debt.
Why do(n’t) we save?
Since it looks like saving can make you happy, let us take a deeper look at what exactly constitutes “savings”, and why is it essential that we save? The answers to these questions are both simple and complex.
At its most basic, however, savings are disposable income that is not spent. It is a portion of your income that you choose not to spend but rather keep for some future use. Savings provide a source of household wealth and also, a cushion against on certain times. Thus, when times are tough, or income is low, we can smooth consumption out and survival is easier. Existing savings also helps avoid bad debt, especially when we need money in the short term.
Savings are quite important and are advisable for households to have, and below are several reasons why you should save.
3 reasons why... you should save
Now that we know why savings is important, the next question is: why don’t people save more? Almost everyone will agree that having savings is a good thing, yet many people have little or nothing saved.
The number one reason that most people do not save is that they feel like they do not have enough. This is in part because of how we think about savings. Most people will define savings as “money kept aside,” which is correct. There’s one problem, though. This definition makes no association to the need for your savings to take priority even over your spending. It teaches you to save what’s left after spending, whereas the better approach to savings may be to save before spending. Therefore, becoming better at saving requires that we learn how to save.
How do you actually save?
Do not save what is left after spending but spend what is left after saving."
American investor, chairman and CEO of Berkshire Hathaway
What makes this excellent advice from Warren Buffett, arguably the best investor who has ever lived?
Your “needs” will rise to meet your income. Remember that statement about human needs being unlimited? Good. If you are spending before saving, by the time you make all the payments and purchases for the so-called necessities, you have little (or nothing) left to put away. Simply put, no savings!
An excellent way to save is to use a savings ratio. The savings ratio is the percentage of disposable income that you have left after your expenses. For example, if you earn 30,000 EUR per year, and you save 3,000 EUR out of this, then your savings ratio is 10%. To make your savings journey worthwhile, you should strive to save more than you find convenient. Push yourself to save more than you think you should.
Who are the biggest savers?
Now that we looked at savings on a personal level, let’s look at how savings affect the economy on a larger scale. The decisions people and businesses make about how to save can have a powerful effect on economic performance. Savings of corporate institutions provide a cushion during a recession, as business savings can help finance takeovers or investing capital projects. Savings made by a family flows into financial institutions, where banks use them as capital to lend out. Savings can also flow into pension funds, or you can invest in the stock market and provide funds for businesses.
Saving more and more
In March 2020, savers in the Eurozone deposited €43 billion. That made it the 8th month where the net inflows exceeded 40 billion Euros since February of 2019, and this shows the resilience of the eurozone deposit market amidst the COVID-19 crisis.
The deposit flows in the Eurozone remained stable amid the economic shock of the coronavirus. The research published in March by the Hamburg-based in Deposit Solutions shows that French savers deposited the most (€19 billion) in the account in March 2020. A total of €7,800 billion is currently deposited in Eurozone banks, of which €750 billion has been added in the last two years. Dr. Tim Sievers, the founder and CEO of Deposit Solutions when commenting on the results of the research, said:
Both banks and European savers rely on deposit products during periods of crisis. Savers are looking to protect their assets from market fluctuations, and the security of guaranteed deposits. Banks, in turn, receive predictable funding that is stable and secure, which is very valuable when the markets are very volatile.”
In another report from Eurostat, the statistical office of the European Union and the European Central Bank, the household saving rate reached an all-time high, at 16.9%, while the household investment rate was down to 8.7%.
In data released from the seasonally adjusted quarterly European sector accounts, the household saving rate in the Eurozone was at 16.9% in the first quarter of 2020. This was around the time EU countries introduced COVID-19 containment measures. The saving rate was an improvement over the fourth quarter of 2020, where the savings rate was 12.7%. It marked the highest recorded increase since the series started in 1999. However, the household investment rate in the Eurozone in the first quarter of 2020 was 8.7%. This was lower than the investment rate of 9.1% recorded in the last quarter of 2019.
On top of the list, German banks hold the most customer deposits (€2,400 billion) in the Eurozone by far. According to March 2020 analysis, however, the people in Germany held less money in their accounts than the previous month. Their savings decreased by €10 billion or 0.4%.
We can see similar behavior in September 2008 after the crash of Lehman Brothers, which led to a financial crisis. In that period, German savers withdrew 0.4% (€6 billion) more money from the accounts they paid in. In the following three months, however, they transferred multiple times this amount back into their account (€70 billion).
Can you save too much?
The answer depends on your personal needs, income and expenditure.”
Having saved too much isn’t a bad problem to have, but you should ask yourself what are your goals for your finances, the present, and your future, and are you meeting them?
The answer depends largely on your personal needs, income, and expenditures. However, you know that you might be too unhappy with your money when you are struggling to meet your needs, even though your savings are growing. If you have legitimate needs that are going unmet, then you might want to reduce your savings ratio.
Having riches is great, but it’s even better when you get to use it the way you want. There is no clear-cut answer. You must find a balance between saving for the future and living for today, and sometimes, you can overcompensate in the savings area.
So, the answer is this: you can never have too much money in your savings, but if you have a financial target and you have met it, you might want to use your money to do other things. Happiness is a factor in life, too.
Who takes on the most debt?
- The amount of debt taken on is somewhat dependent on the awareness of discretionary debt.
- Awareness of discretionary debt seems to have increased, due to the uncertainties caused by the coronavirus pandemic.
- 30% of Europeans do not seem to recognize delayed payment options as debt.
In the face of the uncertainty imposed by the Coronavirus pandemic, the awareness of discretionary debt seems to have increased. However, on average, a third of Europeans do not recognize delayed payment options as debt. The sensitivity regarding debt awareness reflects in the reducing number of people who said that delayed payment options are not debt.
In a study by ING, they asked whether people would feel like they were taking on debt if they used a range of delayed payment options. Each of these options could be debt, as missing a payment will put you in arrears. Yet at least a quarter said that they would not feel like they were taking on debt issues with that method of a payment delay.
The study carried out in December 2019, 36% said it didn’t seem like they went into debt If they selected a buy-now-pay-later option, paid with a credit card, shopped interest-free, or signed a payment contract at checkout. By May 2020, this number had reduced to an average of 30%.
Discretionary debt is an interesting choice because you can delay the pain of payment, and the gratification from consumption can be near immediate. so, our behavior is essential to debt repayment. Most Europeans (65%) paid all their bills on time in the past 12 months, but habits also play a role. Those that paid their most recent bill were much less likely to have paid the bill late last year, even if they could have waited.
However, there is no silver bullet for debt repayment. It takes resisting procrastination and prioritizing the repayments to get out of debt. Out of those that paid the bill late in the previous year, 36% either procrastinated or forgot. It wasn’t that they didn’t have enough money. As soon as the debt was distant from them, it became hard to keep in mind and act on when needed.
How COVID-19 impacted saving
Covid-19 has a significant impact on the saving and spending behavior of many families across Europe. Take Belgium, for example. 43% spent considerably less during the corona crisis.
It is easy to compare before and after the coronavirus pandemic with family and friends. Most would go out for dinner on occasion or love to buy lots of different food to cook, known as a Burgundian lifestyle. Similar countries like France and Ireland have spent much less since the corona outbreak. It clearly shows that that lifestyle has a direct impact on your spending. Countries like Poland, Denmark, Austria, and Germany, which have a less lavish eating lifestyle saw their expenditures decrease.
Despite the additional savings efforts, half of Belgians (51%) also indicate that their financial well-being has deteriorated since the crisis. This puts Belgium in the European peloton. Financial well-being refers to the security of being able to pay daily expenses and maintain control of personal finances. In Greece and some Eastern European countries, this percentage rises to 67%, while in the Scandinavian countries, it is limited to 30% of the population.
The deteriorating financial well-being of Belgians is also reflected in their payment behavior. According to the report, 22% of Belgians deliberately postpone more payments of invoices to meet essential daily needs.
This also shows how coronacrisis has an impact on the general well-being of people. Their ability to save for the future is a key concern: 39 percent of European consumers in our survey say they are saving significantly less money for the future than they were before Covid-19. As we have now seen, this does impact the happiness of people. This supported by research linking certain types of debt to unhappiness (Tay, Batz, Parrigon, & Kuykendall, 2016).
- Van Maldegem, P. (2020, June 9). Belgen sparen meer Dan andere Europeanen tijdens crisis. De Tijd. https://www.tijd.be/netto/budget/belgen-sparen-meer-dan-andere-europeanen-tijdens-crisis/10231717.html
- ING. (2018, February). Savings comfort – a path to happiness: Examining money choices in Europe, USA and Australia. ING Think – Economic and Financial Analysis | ING Think. https://think.ing.com/uploads/reports/ING_International_Survey_Savings_2018_FINAL.pdf
- Walker, M. (2020, May 21). European savers deposited €43 billion in March 2020, demonstrating the resilience of the Eurozone deposit market amidst the COVID-19 crisis. Fintech News & Reviews Daily | The Fintech Times. https://thefintechtimes.com/european-savers-deposited-e43-billion-in-march-2020-demonstrating-the-resilience-of-the-eurozone-deposit-market-amidst-the-covid-19-crisis/
- My money coach. (n.d.). 10 reasons why you should save money. My Money Coach. https://www.mymoneycoach.ca/saving-money/why-save-money
- Geoff, R. (2020, August 4). Household saving | Economics | tutor2u. tutor2u. https://www.tutor2u.net/economics/reference/household-saving
- Tay, L., Batz, C., Parrigon, S., & Kuykendall, L. (2016). Debt and subjective well-being: The other side of the income-happiness coin. Journal of Happiness Studies, 18(3), 903-937. https://doi.org/10.1007/s10902-016-9758-5