Households expect not to spend the vast majority of savings accumulated during the pandemic period on consumption

Significant increase in household savings

The coronavirus pandemic has seen household savings rise to record levels. In the first quarter of 2021, the cumulative total amount of these pandemic savings stood at around €46 billion. These are the additional savings compared to pre-pandemic level and are largely the result of the limited opportunities to consume due to the contact-restrictive measures. A key question for the development of households’ consumption is to what extent these pandemic savings will be used for consumption.

Households expect limited catch-up consumption

On average, households plan to use 14% of additional savings for consumption purposes (Figure 1). This percentage is similar to the results of several international surveys, with these savings expected to be spent within a year (Source:  Goldman Sachs, 2021). The expected level of pent-up demand is therefore limited. A possible explanation for this is that it is more difficult to make up for missed consumption of services than that of goods. Although higher income households tend to have a lower marginal propensity to consume, survey results do not indicate a significant difference in the level of pent-up demand between different income groups.

In addition, households indicate that they intend to spend most of the money on consumer durables (36%), such as clothing, electronic devices and cars. These are generally goods that are mainly imported from abroad and therefore do not contribute to economic activity in the Netherlands.  This applies moreover to holidays, on which households intend to spend a quarter of the extra savings. Next on the list are expenditures on hospitality including restaurant visits (14%), other (14%) and culture & recreation (11%).

Households plan to keep savings mainly in a bank account

Based on the survey results, around half of the pandemic savings can be expected to remain in a bank account. Next comes investment in housing (18%). This includes both house improvements and the purchase of a new home. In the case of house improvements, this leads to higher household expenditure. Households intend to spend the remaining part of the pandemic savings to repay debt (7%), to invest in financial products (7%), and to make donations (3%).

Mainly forced additional savings

A previous DNB-analysis (See page 21) already showed that the vast majority of the extra savings were involuntary. The increase in savings is mainly due to the decline in household consumption expenditure during the pandemic. As a result of the government support packages, household income losses remained limited, while the contact-restrictive measures significantly reduced consumption possibilities. In addition, households saved as a precautionary measure in view of increased economic uncertainty, for example due to a higher risk of unemployment.

Pandemic savings prevalent among  higher income households

The DNB survey shows that pandemic savings are concentrated in a limited group. Of all households, 38% indicate that they have saved more in the past year than in 2019. However, the share of households that have made additional savings is almost twice as high for households with net income above €2,600 per month (46%) than for lower-income households (24%). This is likely because before the pandemic higher incomes spent a larger share of their income on services, such as hospitality services, which were temporarily unavailable due to the contact-restrictive measures. In addition, employees have significantly saved more often than self-employed (47% compared to 21%). On average, the latter group has been hit harder by the economic consequences of the pandemic.

Furthermore, the survey shows that one in seven households saved less than in 2019. This is particularly true for households working in a sector hard hit by the crisis (hospitality industry, transport and culture & recreation). In this group, one in four saved less than in 2019.

Implications for economic growth

The survey results are in line with DNB’s latest forecast for the Dutch economy (June Economic Developments and Outlook). For example, the June Economic Developments and Outlook assumes a limited level of pent-up demand for households with additional savings. Nevertheless, we foresee a strong recovery of household consumption in 2021, assuming that the contact-restricting measures are gradually lifted and households resume their pre-pandemic consumption patterns.