Household saving rate during COVID-19
The current coronavirus (COVID-19) crisis is characterised by the many unprecedented restrictions placed on people and their economic activities, in order to limit the local and global spread of COVID-19.
Income and savings are two indicators which reflect the economic situation of households. They are used to reach a better understanding of the impact of COVID-19 on households and their behaviour.
The dynamics of household income and savings were similar in the euro area before the COVID-19 crisis (see Chart 1), but in 2020 the effects of the crisis on these dynamics became apparent. Although household income tends to fall in times of a classical economic crisis, the support measures implemented by euro area national governments in 2020 mitigated the fall in household income which, overall, remained relatively stable. At the same time there was a strong increase in savings, driven by governmental restrictions which affected the ability of citizens to spend.
Chart 1. Euro area household income and savings indices
Quarterly, gross values, seasonally adjusted (Indices Q4 2016 = 100)
As a result, the saving rate increased almost twofold, reaching 25% of income in the second quarter of 2020, compared with a saving rate of approximately 12-13% before 2020 (see Chart 2). The saving rate is based on the euro area average and can vary significantly between individual euro area countries. Overall, influenced by the evolution of the COVID-19 crisis and the accompanying governmental measures, there were significant quarterly fluctuations in the saving rate in 2020. The rate was significantly higher in 2020 than in the fourth quarter of 2019. It increased by 4 and 12 percentage points in the first and second quarters of 2020 respectively, compared with the fourth quarter of 2019. The saving rate therefore almost doubled to 25% from the fourth quarter of 2019 to the second quarter of 2020.
The saving rate was 18 percent in third quarter 2020 and increased to 20 percent in fourth quarter 2020. The fourth quarter of 2020 is 7 percentage points larger than in the same quarter of 2019.
Chart 2. The saving rate – dynamics
Gross values, seasonally adjusted (percentage of income)
Although an increase in saving is not an atypical phenomenon during crises, the magnitude of this increase is unusual, and is a result of the accumulation of funds due to the restrictions placed on spending activities (i.e. forced saving). As Chart 3 shows, in the second quarter of 2020 forced savings accounted for growth of 13 percentage points in the household saving rate compared with the fourth quarter of 2019, which was ten times greater than the percentage point contribution from precautionary savings.
Chart 3. Drivers of the household saving rate during COVID-19
Change in income in comparison with Q4 2019 (percentage points)
|■||Forced savings||■||Precautionary savings||■||Other effects|
Sources: Eurostat, ECB estimates, Economic Bulletin, Issue 6, 2020.
The household sector covers individuals or groups of individuals who are not only consumers, but also entrepreneurs (e.g. sole proprietorships and partnerships). The sector also covers non-profit institutions serving households (e.g. churches, charities and trade unions) and are reported together with households.
Household savings describes the total savings of the household sector in national accounts. It is obtained by subtracting individual consumption expenditure from the disposable income of households and adjusting for net changes in pension entitlements.
Households’ individual consumption expenditure is the actual and imputed final expenditure incurred when purchasing individual goods and services. It also includes expenditure incurred when selling individual goods and services at prices that are not economically significant.
Income means disposable income and consists of income from employment and from operating unincorporated enterprises, plus income from interest, dividends and social benefits minus payments of income taxes, interest and social contributions.
The data used in Chart 1 are based on current prices, which are nominal values over a reporting period. Nominal values are prices that have not been adjusted for inflation.
The data used in Charts 1 and 2 are calendar and seasonally adjusted. This adjustment aims to estimate and remove seasonal effects from time series so that seasonal fluctuations disappear. An example of a seasonal fluctuation is the increase in consumer consumption during the Christmas period.
The data used in Chart 3 are calculated using an internal estimation model for all quarters, according to the ECB Economic Bulletin, Issue 6, 2020. The expected unemployment rate typically relates to the saving rate. Precautionary savings can therefore be estimated by looking at unemployment data/estimations. However, the biggest portion of savings actually recorded is far in excess of this amount, due to the unprecedented obligatory reduction in consumption caused by COVID-19 restrictions. This portion is referred to as “forced savings”. In the model used the dependent variable is the saving rate, while the explanatory variables are households’ unemployment expectations, expected household income growth, the lagged household financial wealth ratio and credit conditions for households.
Find out more about savings and income of households:
“COVID-19 and the increase in household savings: precautionary or forced?”, Economic Bulletin, Issue 6, ECB, 2020.
For data on households’ financial savings and income, see the ECB’s Statistical Data Warehouse
All data series used in this Insight can be found in the downloadable file at the bottom of the Insight