Savings and Investment Index shows significant change in saving habits

• Level of saving normalises to pre-pandemic amounts
• Irish households saving 14% of income now compared with 24% at end of 2022 and 12.2% in 2019 (Source: CSO)
• Interest in investing remains steady amidst challenging backdrop

Bank of Ireland’s Savings and Investment Index in Q2 2023 shows that even though inflation has dropped from a high of 9.2% p.a. in October last year to 6.6% in May this year, it remains the number one concern for Irish consumers (32%). Concerns over the cost of housing and rent (19%) also remain high, with the latest research revealing that the cumulative impact of inflation will continue to be an ongoing concern for households even if the headline rate looks likely to continue to drop.

Table 1: Top concerns amongst Irish consumers over past year

Kevin Quinn, Chief Investment Strategist, Bank of Ireland commented: “2023 has seen a considerable shift in attitudes to saving. During the pandemic people were saving almost a quarter of their income, and that pattern continued throughout 2022. But this year, as the cost of living has become such a challenge for many households, savings levels have begun to revert to pre-pandemic norms.”

Normalisation in savings habits underway as stock of savings increases by €7.5bn

The latest survey shows that household attitudes to the savings environment are changing rapidly in 2023. The overall savings environment index dropped to a new low (69) as too did people’s attitude to whether it will be a good time to save in the coming six months (73).

This aligns with recently published CSO data showing that the amount being saved as a percentage of income in Ireland fell sharply in Q1 2023, with Irish households now saving 14% of their income compared to 24% at end of 2022. However, it is still higher than pre-pandemic levels (2019 was 12.2%) but the trend is clearly one of normalisation. This has happened as household consumption went up, while real income has dropped.

Attitudes to investing hold steady

Regarding the investing environment, attitudes have remained steady with no overall change to the investment index for May (85). This comes on the back of very solid gains in both the equity and bond markets in the first half of 2023. As of mid-June, global equity markets were up over 9% while global bond markets were up almost 2%. Despite these very solid gains, there remains an air of caution amongst households when it comes to investing.

“Our investments survey provides a mixed message. On the surface, interest in investing has been steady in recent months, having dropped back from the highs reached in 2021. While investment returns have been strong so far this year, markets have had a lot of news to digest – so it’s not surprising that there has been something of a trade-off in investors’ minds.

“The year has seen very strong returns from some of the major equity markets with 20-25% returns in the main US and European indices since the low last September. We’ve also seen economies stay stronger than expected and company earnings, particularly in Europe, being a good deal better than anticipated. However, we’ve recently seen both regional banking problems in the US and the debt ceiling negotiations create worries for investors. We’ve also seen markets face a tug of war between high but falling inflation and the continuing interest rate increases from central banks.

“The past few months has seen another element enter the equation as the large technology-oriented companies, particularly those who are likely to lead in artificial intelligence have made massive gains. This trend will undoubtedly be one of the defining features of the investment market this year. The fact that several major equity markets are now in a bull market is likely to see increased confidence amongst many would-be investors as they look to deploy their money in either regular investment or pension funds,” said Kevin Quinn.