Savings

Inflation weighs on Latvian public savings / Article

The most common reason that the Latvian public cites for not creating savings is low income and the fact that they live from salary to salary. Moreover, interest rates on deposits have even been negative in recent years, with the deposit rate minus 0.5%. Last Thursday, the European Central Bank (ECB) raised its key rate to 1.25%, which will have a positive impact on future savings.

During the Covid pandemic, the savings of the Latvian population increased to 9 billion euros. Andris Lāriņš, a representative of Association Finance Latvia, said that after the abolition of restrictions related to the pandemic, savings continue to increase but more slowly.

“According to [Latvian central bank] Bank of Latvia, savings continue to increase in Latvia,” Lāriņš said. especially in the second half of the summer, which means that the cash reserve is for residents to somehow alleviate this high inflation, but one of the problems is that 80% of the money belongs to 20% of the population. »

The Baltic States currently have the highest inflation rate in the Eurozone, around 20%, and inflation affects not only purchasing power but also deposits.

A study on the retention habits of the population was recently carried out by the insurance company ERGO. According to ERGO Life Insurance Product Development Manager Kaspars Zvirgzdiņš, the majority of the population is aware of the importance of saving, but only 40% of respondents save.

“Two-thirds of respondents say saving is an important thing, 31% of people said it’s worth thinking about but they don’t have the money to do it,” said Zvirgzdiņš. “We had a question about how the events of this year – war and inflation – affect your savings habits, and 5% answered that the events of this year caused them to start saving. ‘on the other hand, 22% said that unfortunately, due to rising prices and lack of free funds, they stopped saving.’

Latvia has a large chunk of the population whose income does not exceed the minimum wage, but Aija Brikše, senior financial literacy specialist at the Bank of Latvia, says those who can afford it aren’t saving either.

“Maybe 5 [euros] it’s a very small sum, but it can certainly be 10 euros per month that we can talk about. It can be 20 and 30 [euros]”, Brikše said.

“If we talk about the other part of the population for which savings have been sufficiently built up, then yes, it is certainly a good time to think about investment opportunities. There are less risky approaches: life insurance, level 3 retirement. Other financial instruments, such as shares and investment funds, can also be considered, but it is certainly preferable to approach either a licensed investment broker, or a bank, and every opportunity to responsibly evaluate before taking the plunge and investing.”

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