Savings and Investment Index posts sharpest decline in 4 years

The Bank of Ireland Savings & Investment Index drops to its lowest level since it began.

The Bank of Ireland Savings and Investment Index has recorded its biggest ever quarterly decline as Irish consumers’ desire to save or invest cooled markedly ahead of the Christmas period.

The index dropped 15 points to 87 in the fourth quarter (vs 102 in Q3). Historically, a fall in saving has been observed in the run up to Christmas but this quarter’s decline is the largest registered by the overall index over any period since it began in 2017. The index also stands at its lowest level since inception.

“What’s also striking is the drop in confidence about investing, despite some exceptionally strong returns for investors this year. Perhaps this reflects the winds of change as the world economy reacts to Omicron”

Just a third (33%) of consumers say now is a good time to save, down from 49% in November 2020. Furthermore, 40% see it as a bad or very bad time to save, up from just 24% in the previous quarter. 

Christmas splurge

Consumers appear to be more confident about spending, given the amount of accumulated savings and the fact that most people are vaccinated.

There have also been more opportunities to spend over the past month with “Black Friday” sales and Christmas shopping underway. Part of the survey captured the period since the Omicron variant hit the headlines and while renewed restrictions may have a bearing in the weeks ahead, there was a noticeable shift to spending in the period.

When it comes to investing, Q4 recorded marked declines in both the incidence of investment (116 vs 126 in Q3) and consumers’ perception of the environment for investing (79 vs 96 in Q3). 42% of people see now as a bad or very bad time to invest, up from just 29% in the previous quarter.

“These findings reveal a considerable shift over the past three months, especially in relation to savings,” explained Kevin Quinn, chief investment strategist at Bank of Ireland.

“It seems likely that there is pent up demand to spend rather than save and all else being equal this could translate into a surge in spending in the run up to and during the Christmas period. This shift also reflects an increased awareness among consumers that the meagre returns on savings and rising prices have eroded the value of savings in this environment.

“What’s also striking is the drop in confidence about investing, despite some exceptionally strong returns for investors this year. Perhaps this reflects the winds of change as the world economy reacts to Omicron, inflation and central bank policy changes – all of which are part of the journey towards a post pandemic economy.”

Fail to prepare, prepare to fail

Compared to the previous quarter, consumers’ optimism about how comfortable they will be in retirement increased 5 points to 125, maintaining levels recorded during most of the pandemic period. Financial preparedness for retirement rose by less, gaining 1 point to 110.

“This trend has been a persistent one throughout the pandemic,” said Kevin Quinn. “There has been only a modest improvement in how people view their financial preparedness, and when we look deeper we often find that there is very little sense of what it actually costs to fund retirement. But that hasn’t stopped people becoming more at ease with how comfortable they view their life in retirement, which is perhaps a consequence of the very changed working and living environment of the past year.”

When asked about their main worries, concerns about a new wave of Covid have increased with three in four people (74%) fairly or very concerned, compared to 62% in September. Those expressing concerns for family health have increased with 64% saying they are very or fairly concerned, up from 57% in September.

“Our survey does suggest that people are increasingly concerned about this most recent Covid wave and what it means for the health of their families,” Quinn added. “With more restrictions in place this will inevitably come more to the fore but for the moment it appears that some of the accumulated household savings will be put to use over the Christmas period.”

John Kennedy
Award-winning ThinkBusiness.ie editor John Kennedy is one of Ireland's most experienced business and technology journalists.

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