Euronews Business takes a look at how much people across Europe are able to save each month as the cost of living crisis continues to hit household budgets.
In 2022, households in the European Union (EU) saved close to one-eighth of their disposable income, that’s about 12.7%, although less cash has been put aside for a rainy day compared to 2021.
That’s according to the research examining “Household Saving Behavior in the Euro Area” (Julia Le Blanc, et al. 2016), which also said that precautionary savings are the most commonly reported motive in all euro area countries, followed by saving for retirement.
Euronews Business has taken a closer look at the data across Europe to see which countries have the highest and lowest household saving rates. Moreover, we explore why there are significant differences among European countries.
To note, household disposable income is what households have available for spending and saving after taxes and transfers. The household saving rate is defined as the gross household saving divided by the gross disposable income by Eurostat, EU’s official statistical office.
Countries with the highest saving rates
In 2022, the gross household saving rate ranged from –4% in Greece to 19.9% in Germany, according to Eurostat. Seven EU countries had household saving rates above 15%. Germany was followed by the Netherlands (19.4%), Luxembourg (18.1%), and France (17.1%).
These countries were able to save more as the households had higher disposable income.
Where people are spending more than they earn
Greece (–4%) and Poland (–0.8%) had negative household saving rates. This shows that households in these two countries spent more than their gross household disposable income. This suggests that they either used accumulated savings from previous periods or borrowed to finance their expenditures.
Twelve EU members, including Greece and Poland, recorded saving rates below 10% in 2022.
Saving rates in some other European countries were as follows: Switzerland (23.4%), Sweden (16%), Austria (15.2%), Belgium (12.9%), Italy (9.8%) and the UK (6.5%, 2019).
As seen in the map below, household saving rates do not suggest a strong divide between the different regions of Europe, such as the western, Nordic, southern and eastern states. Only three Baltic countries had lower rates, below 5%.
Household saving per capita in the EU
Looking at the figures rather than rates, the gross household savings per capita in the EU was €2,723 in 2022. It varied from –€523 in Greece to €8,136 in Luxembourg in the EU. Switzerland, an EFTA country, had the highest household saving per capita with €13,676.
In addition to Luxembourg, the household saving per capita was above €4,000 in these countries: Germany (€5,912), the Netherlands (€5,638), Austria (€4,567), Sweden (€4,481), France (€4,287), Norway (€4,243) and Denmark (€4,067).
Household saving per capita was below €1,000 in seven EU member states, among which Greece and Poland had negative values.
Getting closer to the levels before COVID-19
Looking at the last two decades, household saving rates both in the EU and euro area dramatically rose during the COVID-19 pandemic, namely in 2020 and 2021. The EU saving rate was relatively stable between 11.6% and 13.5% from 2002 to 2019.
This rate never exceeded 13.5% in the EU before the pandemic. It jumped to 18.5% in 2020, and it was 16.4% in 2021. The 2022 figures suggest that the EU saving rate is getting closer to the levels before the COVID-19 pandemic.
The main reasons for saving money
One of the reasons why savings considerably increased during the COVID-19 crisis is that some opportunities for consumption expenditures were restricted. This included the purchase of hospitality, entertainment, and travel services; this was particularly notable in 2020 according to Eurostat.
It also suggests that household saving rates may be expected to increase during periods of economic uncertainty, as households tend to save more when the risk of losing a job rises and they may defer expenditures on some or many non-essential goods and services.
A recent study by Can Xu in Economic Analysis and Policy explained the rise during the COVID-19 pandemic by the ‘precautionary saving’ theory. Increased uncertainty positively affects savings because households are prudent and want to seek protection from uncertainty, resulting in a significant adverse impact on current consumption and a positive impact on savings.
Based on 2008–2011 data, an academic article by Julia Le Blanc and her colleagues also found that precautionary saving is the most commonly reported motive in all euro area countries, followed by saving for retirement. It also revealed that variables related to the structure of the tax system and the generosity of the social security and welfare systems are important determinants of household saving.
Differences across countries
Income levels, age dependency and uncertainty can explain more than half of the variance in saving rates according to a discussion paper published by the European Commission.
The paper, which is entitled “Household saving rates in the EU: Why do they differ so much?” by Stijn Rocher and Michael H. Stierle examines the saving rates between 2000 to 2012 in 25 EU countries. Household saving rates differ significantly among EU countries, and the differences have proven to be persistent over time, according to the paper.
Richer countries save more
It goes without saying that of course it found richer countries were able to save more, while countries with high age dependency were associated with low saving rates, because the working age population tends to save more than the old and the young.
Weak government finances also encourage households to save more. Higher inflation was further found to be linked with lower household saving rates.
The significant differences in disposable income across Europe demonstrates the extent of inequality across the continent.