correlation which could be interpreted as evidence that better social safety nets reduce (precautionary) savings. Thus, we conclude that our indicator of savings, while partially based on respondents’ perceptions, is a meaningful measure.

# **3.4. Informal and bank savings are the predominant saving instruments**

Theoretical models of household investment behavior predict that all households should participate in all financial markets and thus hold a diversified portfolio which includes risky financial assets (Panizza, 2015). Empirical evidence on actual investment behavior including investment in risky assets is scarce and mainly limited to high income countries. Guiso and Sodini (2013) gather evidence on direct and indirect stock holding for 12 countries; more recently the Household Finance and Consumption Survey in the euro area collected new data on the saving behavior of households in 15 euro area countries. On average 33% of households in the euro area have any contractual savings and 20.2 % of households across the euro area hold capital market savings (Arrondel et al, 2014).

In CEEU and WB, among those individuals who save (40% on average, see Figure 1), an equal percentage of households have informal savings (74.6%) and bank savings (74.1%). The very high percentage of informal savings is dominated by savings in cash, a feature of households’ saving behavior in transition economies which has been documented and analyzed in depth by previous research (Stix, 2013). With three out of four savers holding bank savings, current accounts and/or saving deposits constitute the predominant form of formal savings. Contractual savings are held by 23% of savers or 9% of households, thus well below the euro area average. In line with the wellknown “stock-market participation puzzle”, participation in capital market savings is very low at less than 3 % of households or 7% of savers.

Heterogeneities across countries in the use of different saving instruments are substantial. Bank savings are held by only 50% of savers in Serbia and up to 90% of savers in Bulgaria, Czech Republic and FYR Macedonia. The differences between countries are even larger for participation in pension funds or life insurance, ranging from below 1% of savers in Albania to above 50% of savers in the Czech Republic. Finally, less than 1% of savers in Albania invest in stocks, bonds or mutual funds compared to 18% in Croatia.

While we do not know the amount invested in the respective saving instrument, we can still shed some light on whether households “diversify” their investments from the number of saving instruments they invest in. Figure 2 (left panel) shows that on average savers hold 1.36 formal saving instruments. Czech Republic stands out with the highest diversification. On the other hand, Romania, Albania, Bosnia and Herzegovina as well as Serbia are significantly below the average. Finally, the right panel of Figure 2 highlights a well-known feature of household savings in Central, Eastern and Southeastern Europe and more generally transition economies. On average 44% of saving deposits are denominated in foreign currency and 60% of those who save in cash have foreign currency cash.

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