By Laura Nuñez Letamendia, Academic Director for the Center for Insurance Research
The worldwide Covid-19 pandemic has pushed many families to examine their household savings in a different way. Over the last decade, a lot of emphases has been placed on the need to encourage individuals to save money to better face their retirement stage, due to the progressive aging of the population, the low birth rates, and the huge deficits and public debt volumes borne by developed societies as a result of the latest financial crisis. However, the unprecedented situation we are experiencing worldwide highlights the importance of saving not only to face the stage of retirement but throughout life, as a mechanism of precaution and financial stability.
While families are becoming aware of the importance to assess their short and mid-term financial stability, it is wise that we all remember the unquestionable relevance of household savings at the macro and microeconomic levels.
Through financial intermediaries, household savings –which take the form of bonds, shares, deposits, funds, ETFs, etc.– fuel business investment through its financing, contributing to the growth of industries, job creation, research and development, and, ultimately, to the creation of wealth in the regions, which in turn benefits population. At the microeconomic level, household savings are also fundamental, as they constitute an important backstop to deal with unforeseen events (loss of employment, illness, etc.) and to level out income and expenditure throughout life (children’s education, retirement period, etc.).
In this sense, it is relevant, not only the savings volume of the economies at the aggregate level, but also the distribution of these savings across the different individuals or families who make up society. The economic and social consequences will be very different if savings are concentrated in a small number of families rather than being widely distributed across different strata of society. It is therefore necessary not only to encourage savings at the aggregate level, but even more so to promote a balanced distribution of savings, ensuring that all households have the knowledge and capacity to save. Small savings rates sustained over time by households generate huge differences in their wealth. Similarly, it is essential that such savings are materialized and diversified through appropriate financial instruments, ensuring that families maintain an adequate level of both liquid assets and medium-long-term assets, according to the phase in their life cycle in which they are.
For this reason, IE Foundation and Fundación Mutualidad Abogacia have created the Household Savings Observatory, generating knowledge useful for households, policymakers, and the industry. Would-be entrepreneurs in the fintech industry can find many relevant insights that can lead to new ventures.
Do families living in large cities save the same as those living in more rural environments or smaller cities? What role do financial knowledge, education, gender, age, or profession play in savings decisions? How does savings distribution across households impact economic growth and social welfare? What financial instruments do families use to save and, above all, why do they choose them? What set of good practices emerge from comparative studies?
Shedding light on this, so that the financial authorities and responsible bodies can take appropriate action, will be our modest contribution to society.