01.02.2023
Changes in saving in Spain since the pandemic*
4th Observatory on Saving and Investment in Spain / Bestinver-IESE
Madrid
Margarita Delgado
Deputy Governor
*lEnglish translation from the original in Spanish
Good morning.
Allow me to begin by pointing out that we are currently observing the "quiet period" that
precedes the monetary policy meetings of the ECB Governing Council. This means that I
cannot refer to issues that could influence expectations about future monetary policy
decisions. Therefore, my thoughts should not be interpreted as insight into the monetary or
economic outlook that might shape expectations regarding these decisions.
And now let me thank Bestinver and the IESE for inviting me to take part in this closing
session of the 4th Observatory on Saving and Investment in Spain.
I should like to begin by describing the developments in Spanish household savings in
recent years. I will go on to discuss how those savings have been channelled towards the
different types of financial and non-financial assets. And I will end by discussing the
importance of strengthening financial education, noting the Banco de España's recent
initiatives in that direction in collaboration with other public institutions.
As we all know, Spanish households built up a very sizeable stockpile of savings during the
most critical stages of the pandemic. Specifically, in 2020 the saving rate of Spanish
households stood close to 18% of their gross disposable income. That is far higher than the
average level for the five preceding years. In 2021 the impact of the health crisis on the
economy waned, prompting a decline in household savings, although these remained high
from a historical standpoint. There has been a pronounced reduction in household savings
flows since end-2021, against a backdrop of high inflation rates in which the nominal
consumption growth rate is outpacing income growth. As a result, in 2022 Q3 the household
saving rate fell below the levels observed in the years leading up to the pandemic.
The high savings levels seen at the height of the pandemic owed to household consumption
dropping far more sharply (more than 12% in 2020) than income, with the latter partially
underpinned by the public support measures deployed to mitigate the adverse economic
effects of the pandemic. The main factor behind the slump in consumption (and the
attendant growth in savings) were the health restrictions, which presented a barrier to
spending on certain services such as hospitality and entertainment.
Bear in mind that the savings growth recorded over the last few years was not distributed
evenly across households. On the spending side, the restrictions had a greater impact on
the consumption patterns of higher-income households, for whom hospitality and
entertainment make up a larger share of the consumption basket. On the income side, they
were hit less hard than lower-income households, since low-income individuals account for
a larger share of employment in the sectors most severely affected by the health crisis. As
a result, a very high proportion of the stock of extraordinary savings built up during the
pandemic was concentrated in the highest income groups, which have a lower marginal
propensity to consume. Therefore, going forward, a significant share of these savings is
likely to remain in the assets in which they were invested rather than being spent on
consumption.
To understand the link between households' savings and their investment, we must first
consider the developments in funding flows. Regarding how the savings have been used, a
significant share of investment has been channelled towards the real estate sector, where
financing tends to be partly in the form of new debt. Meanwhile, some of the savings may
have been used to repay outstanding loans.
Between early 2020 and 2022 Q3, households' net acquisition of financial assets amounted
to €196 billion, 77% of which took the form of cash and bank deposits. The remaining
financial investment was almost entirely accounted for by the net acquisition of investment
fund units (€50 billion). During this period, Spanish households divested, in net terms, from
financial assets such as insurance schemes, pension funds and debt securities (in particular
long-term debt securities). Meanwhile, a total of €139 billion was invested in housing. All of
these investments were financed out of the new savings that had been built up (€269 billion)
and debt (some €8 billion net of repayments).
This analysis of overall savings developments in Spain during the last few years can be
divided into three distinct stages.
In 2020, the growth in savings essentially took place through the acquisition of financial
assets, mainly the most liquid ones. Specifically, investment in financial assets stood at
€113 billion, of which €74 billion was allocated to cash and deposits, while investment in
housing amounted to €42 billion.
In 2021, as the pandemic restrictions were gradually eased, the level of savings lessened
and there was a pick-up in new bank lending for investment in real estate. The net
acquisition of financial assets amounted to €72 billion in the year and a total of €54 billion
was invested in housing. Of the total invested in financial assets, 40% was accounted for
by assets other than cash and deposits, most notably net purchases of investment fund
units (€33 billion).
The high rates of inflation observed from late 2021 have prompted growth in nominal
consumption, which, as I have said, reduces household savings.
New lending to households remained very robust in 2022, essentially due to buoyant lending
for house purchase. This marked a continuation of the trend observed since early 2021,
although a clear slowdown has been evident in the last few months, shaped by the
tightening of financial conditions.
The net acquisition of financial assets declined sharply in 2022, although we do not yet have
data for the final quarter. Looking at the breakdown by instrument, in the first three quarters
of last year households continued to increase their cash holdings and deposits at a good
pace, with new investments in these liquid instruments amounting to €33 billion. By contrast,
households divested €22 billion from other financial instruments. This may owe to the weak
performance of financial markets in 2022.
Lastly, repayments of outstanding debt increased over the course of 2022, driven by the
repayment of loans for house purchase, possibly as a result of higher interest rates
increasing the debt payments made by households with floating-rate loans. Some of those
with surplus savings may have used part of these to pay down debt, at a time when high
inflation is eroding the real value of cash holdings and deposits.
To sum up, in 2020 the bulk of the savings built up - mainly by higher-income households
- was put into liquid assets. In 2021, residential investment began to gain upward
momentum, while a larger share of net financial asset acquisitions took the form of
investment funds and cash holdings, and deposits represented a lower relative share. Lastly,
in 2022 (albeit in the absence of data for the full year), the acquisition of financial assets
declined as savings levels dropped.
Further, we will have to wait and see how investment decisions are affected by rising interest
rates, both in terms of the type of financial product (investment funds, debt securities, etc.)
and in terms of residential investment, which is slowing somewhat due to a tightening of
financial conditions.
As I have said, the extraordinary savings accumulated during the pandemic were
concentrated among higher-income households, whose portfolios are also more diversified.
According to the 2020 Spanish Survey of Household Finances, real assets1 accounted for
88% of the total assets held by households below the 20th percentile of the distribution
(with their principal residence accounting for 66% of the total). However, for households in
the 90th income percentile, real assets represented 73% of all assets and the principal
residence just 34%. Similarly, a very small percentage of low-income households have listed
shares or investment funds in their portfolios (less than 3%, compared with 33% and 22%,
respectively, of households in the top decile of the distribution).
One factor that influences households' investment decisions is familiarity with financial
products. Indeed, as the Bestinver-IESE/CIF observatory has shown, even in a study
targeted at people more likely to be acquainted with financial investments, familiarity with
savings vehicles and financial decisions vary across income, age and gender groups.
These findings are consistent with those of the Banco de España's latest Survey of Financial
Competences. This survey, based on a representative sample of the Spanish population
aged between 18 and 79, shows broad differences in the level of familiarity with the most
common financial products. For example, according to the survey results, fixed-term
deposits are the most common financial product among households (26%), and yet they
are also one of the least known (just 73% have heard of them). The population segment
least aware of this basic investment product is that with the lowest educational attainment
and the lowest income (around 60% have heard of them).2
The public's lack of basic financial literacy is also evident in their unfamiliarity with the
concept of risk diversification. Specifically, the Survey of Financial Competences gauges
whether respondents understand that, generally speaking, a broad portfolio of equities will
offer less volatile returns than a single share. According to the survey, only half of the
population understands this concept.
For some years the Banco de España has been implementing its Financial Education Plan,
an initiative designed to help the public better manage their personal and household
finances, and to foster what we now call "financial health". This plan has been run from the
outset in collaboration with the National Securities Market Commission and more recently
with the Ministry of Economic Affairs and Digital Transformation.
Since its launch, the Financial Education Plan has raised awareness of financial planning
and encouraged households to treat savings as a fixed expense, helping them to build up a
financial safety net based on what they can afford. Further, the plan also aims to teach the
general public, and students in particular, to make responsible use of credit as and when it
is needed, and to invest their savings based on sound risk assessments and in awareness
of the risk-return trade-off.
The Banco de España has redoubled its engagement in financial education, with recent
structural changes aimed at reinforcing this function and helping the public to make better
financial decisions, including when it comes to their savings and investments.
In conclusion, Spanish households' ability to appropriately manage their savings, based on
informed decision-making, is a cornerstone of their financial health and, therefore, of
stability for society at large.
Thank you very much.