3 February 2020
Savings: an essential part of the economy ... and our lives
It is often said that Belgium is a nation of savers. Why do the Belgians save? What is their average savings rate? How does it evolve during their lifetime? We zoom in on the Belgians' savings habits.
It is often said that Belgium is a nation of savers. Historically, the savings rate among Belgians, meaning the ratio between savings and household income, was among the highest in Europe. Today, the situation has changed slightly, but the savings rate remains slightly higher than the European average. The financial resources saved by households take very different forms. They may be “invested” in shares, bonds, investment funds or property, or they may be simply left in an account. But whatever form they take, savings play an important role because, through the financial markets or intermediaries like the banks, they help to finance households that are planning to buy a home or companies that want to invest in materials, buildings or other items. Savings are therefore essential to the proper functioning of the economy.
Very different situations
Obviously, when it comes to Belgians’ savings, that often covers very different situations. Studies indicate that between 20% and 40% of households don’t save, while others have a savings rate that may be as much as 30% to 40% of their net income. This may be by choice, but it may also be by obligation. In fact, we see a very strong relationship between a household’s level of income and its savings rate. In 2018, the vast majority of households whose net annual income was less than €20,000 had a negative savings rate. Spending more than one earns is possible either through borrowing, or by consuming a portion of capital accumulated in the past. At an individual level, a major role of saving is to prepare for a period (planned or unplanned) during which income will diminish. In other words, when we get the opportunity to save, we accept that we will consume less today in order to maintain a certain level of consumption in the future.
Here, we are obviously thinking of pensions. In Belgium, the level of statutory pension generally does not allow individuals to maintain the same level of consumption as they had when they were working, other than by using income from past savings ... or by “consuming” a portion of those savings. This is what we call the “savings cycle”. Initially, studies and starter salaries, combined with the expenses specific to a young household, mean that individuals under the age of 30 have a very weak savings rate. But it increases for older age brackets, before falling drastically after the age of 60. Therefore, beyond being an essential element to the functioning of the economy, savings are also a regulator of consumption throughout the life of a household. In this respect, they play an important role, which is all the more reason to manage them in the best possible way.