To get a brief insight into this we can turn to the Financial Data on the household sector provided by the Central Bank. Table A11.1 provides the figures for deposit by Irish residents by sector and category. Here are the endpoints of 2009 (in €millions).
| Month | Deposits from Irish Households | Change |
| Jan 2009 | 97,684 | - |
| Dec 2009 | 99,148 | +1,464 |
At the start of 2009, Irish households had €97.7 billion on deposit. During the course of a year in which €11 billion was saved, deposits of Irish households increased by just €1.5 billion.
Although the level of deposits remained relatively unchanged in 2009, there was some change in the type of deposits used by Irish households.
Over the year deposits in accounts with a maturity of up to two years fell from €37.1 billion in January to €31.5 billion. At the same time deposits in accounts with notice periods of three months or less rose from €7.8 billion to €13.6 billion. It seems households want to be in a position of having quicker access to their deposits.
So if households didn’t put the money that wasn’t spent on deposit where did it go? To answer this we can turn to Table A5.1 with gives details of loans to Irish households. Here again are the endpoints of 2009, in €millions.
| Month | Loans to Irish Households | Change |
| Jan 2009 | 151,209 | - |
| Dec 2009 | 140,085 | -11,124 |
The total value of loans extended to Irish households fell by over €11 billion in 2009. This €11.1 billion reduction was split across loans for house purchases (down €5.3 billion to €110.2 billion), consumer credit (down €5.2 billion to €23.8 billion), and other loans (down €0.7 billion to €6.1 billion). The largest proportionate decrease was in consumer credit which fell by 17.9%, loans for house purchases fell 4.5% and other loans were down 10.4%. It is likely that a significant portion of these reductions is due to repayments by households but some may be due to revaluations and write-offs.
Still, the pattern is pretty clear. Most of the money saved in 2009 as indicated by the Household Sector Accounts was not used to build up deposits but was used to pay down debt.
If we extend this analysis through to the most recent September 2010 data we see that the patterns seen in 2009 have not carried through to 2010.
| Month | Deposits from Irish Households | Change | Loans to Irish Households | Change | |
| Dec 2009 | 99,148 | - | 140,085 | ||
| Sep 2010 | 96,221 | -2,927 | 139,096 | -989 |
It appears, in fact, that the overall saving trend has reversed. In 2010, household deposits have fallen by €2.9 billion while household loans have fallen by close to €1 billion. This is indicative of dissaving rather than saving.
The jump in the savings rate seen in 2009 may prove to be only a transitory effect. And with retail sales now below last year’s level this suggests that household disposable income has dropped significantly in 2010.
Thanks for that.
ReplyDeleteI think the change in net worth is also noteworthy (running at about -19bn a quarter in 2009). This suggests that average net net savings are running at about -16bn a quarter?
Given the stock market recovery in 2009, it also appears that insurance technical reserves and spending on stocks and shares are contributing to the household savings rate? Is this not a little like saying that your lotto ticket is the winning one up to the time that the draw is made and it is not?
I don't see how a) insurance reserves should be considered and b) how investments in stocks and shares should be considered saving, but revaluations are not (in the same way that I don't understand how paying down debt is saving, but revaluations of assets are not).
My reasoning is that saving is determined, at least in part, by net financial wealth and expectations of outcomes. If you think your retirement is underfunded, because your assets have diminished in value, you feel the need to regain your position.