War and inflation top consumer worries and hit saving habits

Rising cost of living rocks savings, investment and retirement confidence in Ireland.

Bank of Ireland’s Savings and Investment Index dropped significantly (to 90 from 96 in February), with consumers now citing the war in Ukraine (32%) and Inflation (22%) as their biggest worries.

There has been a significant drop in consumers who are saving regularly (40% in May vs 47% in February) and investor confidence has dropped as markets fell back.

“The significant increase in inflation in the past quarter has led a lot of consumers to re-think their savings habits”

Consistent with international surveys, Covid has dropped rapidly from the list of top concerns, cited by just 1 in 20 as their biggest concern, below cost of housing (13%), climate change (11%) and global recession (11%). This significant shift has influenced how Irish consumers view their savings and investment plans.

Cost of living concerns

Top concerns May ‘22

  War in Ukraine Inflation/Cost of living Cost of housing/rent Climate change Global recession Covid Other
16-29 year olds 21% 21% 26% 17% 8% 2% 5%
30-59 year olds 29% 27% 12% 9% 11% 5% 7%
60+ 46% 15% 2% 12% 13% 7% 5%
Overall 32% 22% 13% 11% 11% 5% 6%


The Index also pointed to significant differences in concerns between generations.

Inflation/cost of living is most significant amongst the core working age population (ages 30-59), 27% of whom cite it as their biggest worry, while this drops to 21% amongst 16-29 year olds. ]

By contrast, amongst those aged 60+, just 15% cited inflation/cost of living as their main worry, with 46% seeing the war in Ukraine as their main concern. Over 1 in 4 of under 30s are most worried about the cost of housing and rent.

Savings drop as consumers focus on the cost of living

During the pandemic, the Savings Index had risen considerably reaching a high of 108 in March 2021. At the end of last year, attitudes to saving looked to be normalising but this has given way to a much greater focus on the cost of living and the Savings Index has now dropped to 91, its lowest level since pre-pandemic times.

With inflation rising, there was a significant drop in the proportion of consumers saving regularly this quarter (40% vs. 47% in Feb 2022). The survey results suggest consumers are possibly dealing with inflation by dipping into their savings and also recognise that with interest rates at near zero, savings may lose real value.

Less than 4 in 10 (38%) of consumers now think it’s a good/very good time to save, which is back to the level seen in February 2020 before Covid drove up savings (the peak stood at 55% in May 2020).

“The significant increase in inflation in the past quarter has led a lot of consumers to re-think their savings habits,” said Kevin Quinn, Chief Investment Strategist at Bank of Ireland.

“The results of our May survey suggest that consumers are both deeply concerned by the tragic events in Ukraine but also very focused on the cost of living challenges now a reality for so many families in Ireland. The survey results suggest that many are dealing with inflation by dipping into the savings built up during the pandemic and also recognising that, with interest rates still near/at zero, savings are losing real purchasing power in this environment.

“The survey also revealed some marked differences between the generations. Younger consumers are more concerned about the cost of housing/rent, while over 30s are most concerned about the war in Ukraine.”

Investor confidence drops as markets fall back

The Investment Index fell to 90 this quarter from its peak of 101 in September ’21 and down from 95 in February this year. Behind this was a drop in the number of people who believe it to be a good/very good time to invest (27% for May ’22 compared to a high of 36% in June ’21). Conversely, there was an increase in those who believe it a bad/very bad time to invest (40% for May ’22 compared to a low of 27% in June ’19).

When asked to look forward six months, these same consumers are somewhat more optimistic with just 32% believing it will remain a bad/very bad time to invest and 29% believing it will be a good/very good time to invest. Despite this, 53% believe they are not investing enough, which is only 2% lower than February ’22 and higher than most scores since 2019.

“The investment market has been very challenging so far in 2022 with both equity and bond markets facing losses as the market adjusts to slower economic growth prospects, conflict in Ukraine and the response of central banks to inflation,” Kevin Quinn explained.

“That Irish investors view the environment as more difficult is of little surprise given the host of reasons for continued volatility in the months ahead. What is surprising is that they continue to recognise that they aren’t investing enough, possibly an acknowledgement that the only way to overcome both inflation and super low interest rates is to continue to invest for the longer term, and for some, that may also mean that a drop in market values presents more opportunities.”

Confidence about retirement double dips

The third component of the survey, the Retirement Optimism Index dropped for the second quarter in a row, falling to a new low since the survey started. The reading for May fell to an overall score of 106, from the 109 in February and down from the May 2020 peak of 120.

When asked about how comfortable they expect to be in retirement, just under a third of respondents feel that they will find it difficult or very difficult. Unsurprisingly this rises amongst lower income households (<€25k) to 53%.   

When asked how financially prepared they are for retirement, this part of the index fell to 102, its lowest reading since the survey started, with 42% of people saying they felt completely/somewhat unprepared. Again, this was most pronounced amongst the lowest income group where 62% feel this way. Amongst those in the core working age bracket (30-59), 55% feel somewhat prepared, while only 8% feel completely financially prepared for retirement. 

“The findings about preparedness for retirement and how comfortable people feel about life in their later years suggest a number of growing concerns,” Quinn explained.

“I suspect that the wider economic environment and in particular the inflation problem is beginning to trouble a lot of people when it comes to what life will be like in retirement. Given we know that huge numbers of people are far less prepared than they think they are, this is going to become more pronounced as inflation may be with us for a considerable time yet. Furthermore, after the first period of losses in most pension fund values since the Covid crisis, this has probably also added to the concerns shared by many in our survey.”

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