We’re saving more, investing more – and putting aside more of this money for the next generation. That is according to a new report from the Central Bank, which examines the reasons behind increased savings in Ireland since 2013.
While saving more for reasons such as retirement is generally considered a positive thing, it’s not all good; the report also finds that the jump in savings, particularly among younger people, can in part be explained by difficulties in buying a house, which means that younger people are saving more and for longer.
But what else does the report tell us about the financial health of the nation’s households?
Thanks to strong economic growth over the past decade, as well as corresponding income growth, Irish households are saving more today than they did back in 2013.
Back then, our household savings rate was 12.6 per cent. While this soared in the Covid years – a time when we were saving almost one fifth of our disposable incomes in part as it was more difficult to spend – it subsequently fell back but it remains higher than it was a decade ago, at 13.8 per cent in 2024.
This propensity to save is in evidence across all incomes. Back in 2005, for example, those on the lowest incomes found their household budgets in the red on a weekly basis. By 2023, the gap between income and spending had become more positive, with all but those in the lowest income bracket having a surplus of funds – ie savings – on a weekly basis.
Between 2013 and 2020, the report shows, the number of households in a position to save out of monthly income increased from one in three to more than one in two. Those in a more precarious financial position who were unable to save fell from more than one in four households to about one in 20.
We’re earning more and we’re spending more but consumption growth hasn’t kept pace with income growth.
Cost of living welfare incentives on offer in recent years – such as energy credits and mortgage interest relief – have also helped, with the authors of the report noting that higher-income households in particular were more likely to save these handouts, which were not taxable.
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While we might be saving more, however, the Irish still lag behind other European countries. Back in 2021, for example, the severity of the Covid-19 lockdowns pushed Ireland to the top of the savings table, with a savings rate of almost 20 per cent.
Since then, however, we have rediscovered our love for spending our money. Latest Eurostat figures for the second quarter of 2024 show that we are saving less than our continental peers.
While Germans save almost 20 per cent of their disposable income, putting them behind only Hungary (24.8 per cent) as the most assiduous European savers, the 13.8 per cent rate in Ireland puts us below the euro zone average of 15.6 per cent.
We’re still doing better on this metric than the Poles (8.8 per cent) or the Greeks (-3 per cent), however.
We may have better savings habits than in bygone years but that doesn’t mean we’re squirrelling the money away for ourselves. About one third of Irish households in 2020 said they were saving not for themselves, but to leave money to their loved ones – in other words for inheritance.
“This share has been rising over time and appears broad-based in age and income,” the report found. And, unsurprisingly, this trend is more marked among those with higher incomes.
Back in 2013, about 11 per cent of those in the second income quintile aged over 60 were saving for their children; by 2020, this had jumped to about 25 per cent. And the proportion among the richest cohort saving for their kids jumped from about 18 per cent to 35 per cent over the period.
Not everyone is saving for their children, however. The figures also show that the proportion of those on the lowest incomes who were saving fell from 23 per cent in 2013 to 17 per cent in 2020.
Why are so many parents saving for their children? Rising house prices and the difficulties in buying a home could be playing a part. As this article noted, substantial parental gifts have becoming increasingly normal in the housing market.
The home ownership rate in Ireland has fallen significantly as prices rise and supply issues remain. Back in 2003, almost four in every five adults owned their own home; by 2023, this had fallen to seven in every 10 (69.4 per cent).
Over 18 per cent of households that are putting money aside are doing so to buy a home. The figure is significantly higher for those aged between 20 and 44, where 40 per cent of savers are saving for a home – up by 17 percentage points between 2003 and 2020.
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“This suggests pent-up demand for housing could be driving increased saving behaviour of younger households,” the report notes. So younger people have to save more – and for longer – in order to be able to buy a home. And this is unlikely to change any time soon.
The Central Bank recently reduced its housing forecast for this year, and said it expects that the Government will miss its housing targets for each of the coming three years. Constrained supply is likely to keep house prices high.
As home ownership rates decline, the authors point to a corresponding shift from housing wealth to financial wealth.
Between 2013 and 2020, there was a jump in appetite for riskier financial assets, such as stocks, which increased by four percentage points in terms of overall participation in riskier financial assets. This was particularly noted among those on middle to lower incomes, as well as those who owned their own homes.
This shift is having an impact on how we hold our overall household wealth. Our share of total financial wealth held in riskier financial assets was up across all incomes by between 5 and 11 percentage points between 2013 and 2020.
However, despite this shift, our homes remain the “key asset of Irish households”. “Despite rising wealth, income and savings rates, housing wealth continues to dominate household wealth,” the report finds.
That means that renters remain poorer than those who own a home, as renters have the lowest participation rates in all categories of household assets – except for one. When it comes to so-called “other financial assets”, which includes money owed by family and friends and complex products such as options, futures, commodities or cryptocurrency, renters have a higher participation rate than either those who own their homes outright, or those who own with a mortgage.
While we might be upping our share in stocks and other investments, Irish people still like the comfort of knowing they can withdraw their funds easily should they need them.
“Irish households retain a strong preference for highly liquid assets”, with close to €1 in every €4 saved going to cash and deposits, the report notes.
And when we consider overall household wealth, it finds that despite the swing towards riskier assets, deposits still make up just over 40 per cent of household financial assets by total value. Renters hold a substantially higher share of wealth in deposits.
The report suggests these households may be holding a higher level of liquid savings in order to acquire housing, as prices increase and lending standards remain contained.
What the report doesn’t say is that this could be having a negative impact on our overall financial wealth. Interest rates on Irish deposits haven’t been great for quite some time and, as the European Central Bank cuts interest rates generally, they have now begun to fall again.
