Why the increase in savings?
Stuck at home, many consumers were left with a considerable amount of their income available, which led to so-called excess savings. The increase in savings is due to two factors. On the one hand, lockdowns and movement restrictions prevented consumers from spending their money, except for basic necessities, or on e-commerce platforms. People could benefit from reduced day-to-day spending, such as transportation for commuting, eating out, and culture and entertainment. This phenomenon is known as forced or involuntary saving. On the other hand, the economic crisis caused by the pandemic led to uncertainty about the future, mostly in terms of employment, which led to precautionary or voluntary savings.
Will additional savings lead to increased spending in the future?
Spending behavior is hard to predict, even more so in times of crisis. Precautionary savings tend to be kept in bank accounts for future emergencies. Also, those who saved more are generally high-income earners. This means that accumulated savings will not necessary be spent once restrictions are eased. In fact, surveys on future spending plans suggest that only a minority of savers are planning to spend the additional savings accumulated during 2020, while the vast majority is inclined to keep them in their bank accounts.
