MONETARY POLICY REPORT | AUTUMN 2023 (box 2)
(authors: Jan Babecký, Renata Pašaličová)
The household saving rate was almost 19% in 2023 Q2, roughly 7 pp above its long-term average. If consumer expectations were to become optimistic again, a rapid drop in the rate could represent potential for a stronger recovery in household consumption. In this context, this box presents some views on households’ balance sheets from the perspective of the different degrees of asset liquidity and the distribution of assets by income group.
Households’ net wealth increased by 48% in nominal terms between 2017 and 2022. This reflects a sustained period of growth in net financial wealth. With house prices rising, the value of housing has gone up even more strongly. In real terms, though, net wealth fell by 0.6% and net financial wealth by 3.1% year on year in 2022 for the first time in ten years because of high inflation. Amid elevated interest rates and negative sentiment, this was accompanied by precautionary and speculative saving.
Since 2021, households have been investing their savings in less liquid financial assets – primarily investment fund shares and units and bonds – to a greater extent than in the past (see Chart 1). There has also been growth in liquid financial assets in the form of savings deposits and time deposits at banks. Creation of liquid financial assets has recently been lower than it was during the Covid pandemic, when, amid lockdowns, households accumulated highly liquid forced overnight deposits (often at the same time as claiming government financial assistance). Those deposits peaked at the start of 2021, when the abolition of the “supergross wage” also had an effect. These forced savings were then released partially. Some savings have also been invested in non-financial assets such as housing, the creation of which, however, has fallen recently. Savings are currently invested mostly in less liquid assets. The conversion of these into liquid assets and in turn into consumer expenditure may be slow.
Chart 1 – The savings breakdown has moved partially towards less liquid items compared to the past
ratio of flows to gross disposable income in %; CNB calculation
Note: Liquid financial assets comprise cash and deposits. Non-financial assets consist of gross capital formation. Other financial assets are calculated as the difference between savings and the aforesaid items.
The saving rate increases with increasing household income (see Chart 2). Until 2019, it was much higher among high-income than lower-income households. In 2020, the above factors during the Covid pandemic caused the saving rate to rise sharply in lower income groups as well (which may have implied a faster decline in the saving rate). In 2022, the household saving rate remained higher than in 2019 primarily among medium- and higher-income households.
Chart 2 – The formation of savings in previous years was due mainly to high-income households, who are maintaining a relatively constant saving rate
ratio to net money income; CNB calculation based on data from Household Budget and Living Conditions Survey (CZSO)
The shape of the Lorenz curve indicates that until 2019, households with the highest income accounted for 80% of total saving. By contrast, households in the lowest two income groups did not save, while medium-income households accounted for around 20%. This shows that the formation of savings is highly uneven.
According to the European Commission’s survey of the perceptions of Czech consumers, higher-income households remain the biggest contributor to the formation of savings in 2023 (see Chart 3).[1] PAQ Research reports similar results.[2] Medium-income households have also been saving more since last year. On the other hand, low-income households are hardly saving at all. Of all the income groups, these households also recorded the biggest deterioration in financial condition as a result of the high inflation and rising cost of living.
Chart 3 – Saving remains concentrated in higher-income households in 2023
net percentage of households’ answers regarding their ability/inability to save; source: European Commission Business and Consumer Survey
The ratio of consumer expenditure to income (the propensity to consume) fell in 2022 relative to 2021 mainly in the case of food and non-alcoholic beverages, doing so across most income groups (see Chart 4). By contrast, the ratio of housing expenditure to income rose among households in the first to third quintiles. The ratios of spending on transport and in restaurants also increased, although least of all for higher-income households. Overall, the propensity to consume is lowest among high-income households.
Chart 4 – The propensity to consume fell mainly in the case of food and rose in the case of housing in 2022
comparison of ratio of consumer expenditure to net money income between 2022 and 2021; differences in pp; CNB calculation based on data from Household Budget and Living Conditions Survey (CZSO)
The distribution of loans to households is also relevant to consumption. According to the Household Finance and Consumption Survey,[3] households in the highest income quintile accounted for around 51% of housing loans in 2021. The figure for the two highest income quintiles combined is 77%. These households are the biggest contributors to the formation of savings.
According to the above survey, net wealth per household was CZK 3.6 million on average (see Table 1). Real assets make up around 96% of total net wealth, followed by liquid financial assets (7.6%) and other financial assets (2.5%), while the ratio for total debt is 5.7%. The wealthiest 20% of households account for more than 50% of the total net wealth in the population. They have a net wealth of CZK 10 million on average. Households in the first quintile have the highest debt ratio and even have negative net wealth.
Table 1 – Net wealth is formed mainly of the real assets of wealthier households
source: Household Finance and Consumption Survey; loans with opposite sign; CNB calculation
| Net wealth | Share of total net wealth in % | |||||
|---|---|---|---|---|---|---|
| Average per household (in CZK thousands) | Czech Republic total (CZK bn) | Real (non-financial) assets | Liquid financial assets | Other financial assets | Total loans | |
| Net wealth | 3 562 | 16 017 | 95.6 | 7.6 | 2.5 | -5.7 |
| of which: | ||||||
| 1st quintile | -28 | -25 | 0.9 | 0.3 | 0.1 | -1.5 |
| 2nd quintile | 1 207 | 1 086 | 6.7 | 0.9 | 0.2 | -1.0 |
| 3rd quintile | 2 494 | 2 241 | 13.7 | 1.1 | 0.3 | -1.0 |
| 4th quintile | 4 097 | 3 680 | 21.8 | 1.7 | 0.4 | -0.9 |
| 5th quintile | 10 050 | 9 035 | 52.6 | 3.6 | 1.5 | -1.2 |
All this implies that households’ net wealth rose further in nominal terms last year. In real terms, however, it fell year on year because of high inflation. In an environment of elevated interest rates, savings are being invested more in less liquid assets than they were in the past. Higher-income households are the biggest contributors to the creation of savings and net wealth. Such households moreover have a lower propensity to consume. However, year-on-year growth in savings is apparent across all household income groups in 2023. Improving consumer sentiment and falling inflation and interest rates can be expected to foster a gradual recovery in household consumption growth and a decline in the household saving rate over the coming quarters. However, much uncertainty still surrounds the speed of return of the saving rate to its long-run level.
[1] See the European Commission survey.
[2] See Kolik domácnostem zbývá po zaplacení všech výdajů (How much households have left after paying all expenses, available in Czech only), a Czech Radio–PAQ Research project.
[3] See Household Finance and Consumption Survey (HFCS) organised by the ECB. Preliminary results are available.