Almost half of Croatian households have no savings fund for rainy days

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In one of the recent analyses, covering a decade (2014-2023, that is, after joining the EU), the Croatian National Bank (HNB) concluded that the inequality in the distribution of deposits among Croatian citizens has slightly decreased over the past decade. They state that the share of asset owners with deposits above the average has particularly increased, while the share of depositors with the highest amounts has decreased.

Such data provide certain arguments in favor of reducing wealth inequality, but they warn that caution is needed in interpreting them, as they do not include information about non-financial assets, primarily real estate, nor about other forms of financial assets.

The figures on which they base the conclusion that inequality is decreasing are approximately as follows: the total share of deposits held by owners in the highest classes – that is, assets held by five percent of owners with the largest individual amounts – has decreased by 8.2 percent, from 67.3 to 59.1 percent. There was particularly pronounced a decrease in the share for one percent of owners with the highest amounts, from 36.7 in 2014 to 30.2 percent in 2023.

This can somewhat be inferred from the data that about 81 percent of owners with lower deposit amounts – less than 10,000 euros per owner – hold just under 12 percent of total deposits. At the same time, less than two percent of owners with the highest deposit amounts, with 100,000 euros and more per owner, hold about 39 percent of total deposits.

Between these two categories, there are about 17 percent of owners who have more than 10,000 but less than 100,000 euros, holding about 49 percent of total deposits. Can we really conclude from this that inequality is decreasing and that those with the least disposable income are saving more? If judged by our interlocutors, not really.

Marijana Ivanov from the Faculty of Economics in Zagreb says that the data showing that 51 percent of depositors have less than a thousand euros in bank accounts should certainly be viewed in comparison with some other indicators.

– According to DZS data, 44.8 percent of people in Croatia live in households that cannot cover an unexpected financial expense, which means they have no savings fund for rainy days. Approximately 24 percent of people live in households that generally manage to make ends meet easily, which, along with 6.7 percent of those who find it easy or very easy to make ends meet, implies that about 30 percent of households certainly have the ability to form savings.

On the other hand, 26.5 percent of households find it difficult or very difficult to make ends meet. In the middle are 42.7 percent of households that manage to make ends meet with some difficulty, and it can be assumed that among them at least a smaller portion forms a certain amount of savings in relatively low amounts of a few thousand euros. All this corresponds with HNB data indicating that only 30 percent of Croatian citizens hold an amount greater than five thousand euros in all their bank accounts, meaning it can be said that they have some savings.

It should also be taken into account the moment of the data state, which is June 30, 2023, and we know that some depositors, especially retirees, withdraw their entire pension amounts from bank accounts and spend them as cash until the end of the month, so they could not be on their accounts, as well as that some account holders at that time of the month enter into allowed overdrafts in which they remain until the next paycheck.

Finally, a small portion of depositors are children, students, and pupils whose accounts generally do not have larger amounts. All this data should therefore be taken with a high degree of caution in interpretation. However, what is indisputable is that the concentration of deposits at the highest amounts is quite high and that from 2014 to 2023 it has not decreased as a result of smaller income and wealth differences, but primarily due to a lower preference for holding savings in banks among the wealthiest part of society, as interest rates on savings in banks have been extremely low for years, and additionally, the benefits of holding cash deposits have been reduced by inflation, so some wealthier segments of society preferred to invest in real estate and financial assets with higher returns – analyzes Ivanov.

Unprepared for a new crisis

Unions always turn and question all official figures concerning their members, so we checked how they resonate with the HNB analysis. Krešimir Sever, the head of the Independent Croatian Trade Unions, says that savings have indeed increased somewhat, primarily due to rising household incomes, wages have increased, pensions have increased, but this data, he says, is insufficient.

– It does not show the real state, as it speaks exclusively about the state of individual accounts, not about the state in households. Moreover, in recent years, the number of citizens using cashless payments has been increasing, meaning people do not need to withdraw cash from their accounts but pay with contactless and debit cards, so there is more money in accounts for that reason. HNB research highlights that deposits account for about 23.5 percent of total household wealth according to Eurostat estimates from 2021. This is just one snapshot showing that there has been a strengthening of part of the middle class that could be seen according to these indicators of account states, but on the other hand, we do not see whether those who had somewhat more funds in the uppermost part, whether those funds were invested in something else – says Sever.

Ivanov adds that she would not conclude that income and wealth disparities in society have decreased over time, rather, they may have significantly increased on the side of total wealth, although, when comparing the situation in 2014 and 2023, the standard of living is indeed significantly better today.

– In 2014 we were still in recession. In 2023 we recorded one of the highest GDP growth rates, while at the same time the unemployment rate was quite low (compared to the significantly higher unemployment rate in 2014), and the labor shortage led to wage increases in all sectors (including clearly for 2023 and the impact of inflation on the necessity of wage growth). In a better economic environment, it is clear that the total accumulated deposits of citizens have increased over the mentioned period and that this growth is most pronounced precisely among the 30 percent of depositors who have relatively small amounts of deposits in banks, including those from four thousand to twenty thousand euros – summarizes Ivanov, who places hopes in financial literacy.

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Marijana Ivanov

photo Ratko Mavar

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Indeed, not only her, this is the mantra (and EU obligation) of all financial institutions, so it is not surprising that it has slightly improved – as the latest OECD research shows, today we are above the average level of 39 countries for which the financial literacy research is conducted by OECD itself.

– In this regard, we record better indicators in the segment of financial knowledge testing, and poorer indicators in the segment of financial behavior. In financial knowledge testing, we showed knowledge of the phenomenon of inflation and the application of the concept of the time value of money, but we are worse at understanding compound interest calculations. However, we record poor indicators in financial behavior regarding active savings (for a significant part of the population this is not an option) and the attitude towards money, with a pronounced preference for spending today without thinking about the importance of saving for tomorrow.

Thus, significantly more than in the case of other OECD member countries and other countries included in the survey, we hold the view that there is greater satisfaction in spending today than in saving long-term. I would say that this is our established phenomenon of high expectations from the state and reliance on the state in the sense that it should take care of its citizens and ensure them a decent standard, without too much thought about how much impact the individual has on his personal financial situation and how important his personal financial responsibility is for forming savings for rainy days or for covering extraordinary expenses, especially savings for old age.

There are too few people for whom an internal locus of control dominates in terms of perceiving success and failure as a result of their own decisions and behavior. There are too many who magically think that some existing positive trends will continue indefinitely, or those who think that things will always somehow be okay. And there is also the phenomenon of ‘bread and games’. As for the next crisis, I would not say that we are prepared for it – in good times, the majority did not form savings for bad times – concludes Ivanov.