Thin fund for ‘rainy days’ – most citizens would not last even a month if they lost their job

Croatian citizens have increasing asset values, are low in debt, but have so little saved money in a ‘rainy day’ fund that they would barely manage a month of household expenses if they suddenly lost their income. These are the key conclusions of the Household Finance and Consumption Survey conducted by the Croatian National Bank (HNB) in 2020 and 2021, as part of the fourth wave of harmonized research from 2021. The research is authored by Igor Jemrić, chief advisor in the Statistics Sector, and Anita Harmina, senior advisor in the Directorate for General Economic Statistics and Statistical Information Systems, and the survey was conducted on a sample of 4,072 households, with a response rate of 33 percent.

Most assets in real estate

According to the results of this wave of the survey, compared to five years ago, Croats are somewhat wealthier. Households in 2021 had a 5.5 percent higher median and an 8.3 percent higher average value of total assets than in 2017. However, as noted in the research, there is still a significant difference between these values – the median total assets amount to 70,600 euros, while the average is 119,900 euros. In other words, half of the citizens own assets worth less than 70,000 euros.

A significant difference is also present in both of its components, the research states. Thus, the average value of real assets amounts to 127,300 euros, while the median is 75,900 euros, while the average value of financial assets is 4,200 euros, and the median is 500 euros. As expected, the largest share of Croatian citizens’ assets is in real estate. A comparison with countries that use the euro and selected EU countries shows that the share of the value of the main residence, which dominates the total value of real assets in all observed countries (and the euro area), reached 69.1 percent in Croatia in 2021, which is above the euro area average (58.6 percent).

In terms of the dominance of real estate in assets, the Czech Republic leads with a share of the value of the main residence of 75.1 percent.

– In Croatia, this share in 2021 is lower, in the euro area, Hungary, and Slovenia it is almost unchanged, while in Slovakia it is higher compared to the third wave of the survey from 2017 – states the research.

The main component of financial assets, which is owned by more than 86 percent of households in Croatia, remains bank deposits, whose share increased to 69.5 percent of the value of financial assets between the two waves of the survey. A significant increase in the share of savings in banks in the financial assets of households is present among households with the lowest income, while a decrease in this share is characteristic of households with the highest income, households with five or more members, younger households, and households with a self-employed reference person.

On average, in debt of 11,400 euros

Despite the growth of lending in recent years, the research shows that Croatian citizens have not massively sunk into ‘debt slavery’. The survey showed that the relatively low share of indebted households in Croatia present in the previous wave of the survey is even lower in this wave (30 percent) and below the euro area average (43 percent). Although the value of debt of indebted households is higher compared to the previous wave, both the median (2,600 euros) and average (11,400 euros) value of debt of indebted households in Croatia are still significantly lower than in the euro area (where the median debt amounts to 30,400 euros, and the average 78,300 euros).

Mortgage debt, which was present in 6.6 percent of households in 2021, accounts for about 64 percent of the total value of debt of Croatian households, with an estimated median value of 21,200 euros. The remaining 36 percent of the total debt value refers to non-mortgage debt, which is held by 26.5 percent of households, with a median value of 1,600 euros.

The estimated net wealth of households in Croatia increased between the surveys from 2017 to 2021. However, we cannot be satisfied when compared to the rest of Europe, whose citizens are significantly wealthier over the five-year period.

– The growth in the value of net wealth of households was most influenced by the increase in the value of real assets, while the impact of the decline in the value of financial assets and the growth of debt was significantly smaller. At the same time, the net wealth of the euro area grew more intensively than in Croatia, which nearly doubled the difference between the net wealth of households in Croatia and those in the euro area – states the research.

Gross household income in Croatia significantly increased between the two waves of the survey, but this increase should be attributed almost exclusively to the aforementioned improvement in the methodology of conducting the survey. The median gross income in Croatia in the fourth wave amounts to 15,700 euros, and the average 19,900 euros, which is significantly less than in the euro area, but also in most of the countries selected for comparison (except Hungary). Given the growth in wages, households in Croatia were not overly burdened by debt even in 2021.

High financial vulnerability

The median debt-to-income ratio is three-quarters lower than in the euro area, so for half of the households in Croatia, total unpaid debt accounts for 17.3 percent of annual gross income. However, this research also showed that households in Croatia are extremely financially unprotected: half of the households in the form of liquid assets have ‘saved’ only 0.9 percent or less of their annual income.

– Expressed in relation to the monthly gross income of households, half of the households in Croatia would not be able to maintain their standard of living for even a month in the event of a complete loss of income based on liquid assets, while at the euro area level, this period is three months – emphasizes the research.

In Croatia, as in the 2021 survey, there is a high inequality of net household wealth characterized by a decrease in inequality among the poorer with a slight increase in inequality among the wealthier. The richest 10 percent of households in Croatia hold 47 percent of net wealth, while the poorest 50 percent of households have only 10.3 percent of total net wealth. At the same time, in Croatia, five percent of households have negative net wealth, the research states.