Following the stabilization of the economic situation in Latvia, decline of unemployment and increase of income, larger amounts of money have become available for the country’s residents. However, according to the study performed by Swedbank, 34% of Latvia’s residents are still forced to survive from salary to salary. This means they only have enough money to cover basic necessities, the bank notes.
20% of respondents describe their financial situation as volatile – expenses regularly exceed income. This forces them to borrow money more often.
28% of respondents describe their finances as stable. These people say they have enough to make periodic savings. However, only 18% of them are able to balance expenses with income and make savings. When asked where they would divert 20 to 50 euros a month, the most often answer was in favour of some purchase, not savings. Only residents aged 50 to 62 seem to understand – it is best to divert finances for retirement. It can be concluded that Latvian residents do not consider retirement and pension matters a priority, giving preference instead to what is in front of them, rather than the future.
«The savings level of Latvian residents exceeded the historically largest level last year – there was EUR 6.3 billion or EUR 3,215 per person kept on bank accounts and deposits. As a comparison, this amount was EUR 1,932 per person in 2010. At the same time, most people do not have a large enough safety pillow – residents either do not divert money regularly or do not divert enough. What’s worse is that many residents either do not include retirement in their planning horizon or remember about it too late. 59% of residents would rather retire at the age of 61, which is below the current pension age,» says Swedbank Insurance and Investment Office manager Kristaps Kopštāls.
He says that 61% of residents rely on state pension system and would like to receive an average of EUR 877 a month, even though the pension level in the country is only EUR 336.
«However, making timely savings for retirement, which is something provided by the country’s three-level pension system, is not enough, because creation of savings in private pension funds is a service used by only 30% of economically active residents. This is especially critical because Latvian society, like the rest of the world, gradually ages, resulting in a rapid reduction of working people capable of sustaining the country’s pensioners. The time people have to spend living as pensioners gradually becomes longer. This is impossible to ignore. Because of that, timely savings can become a guarantee for the future. OECD mentioned in its recent report about Latvia’s pension system – older residents are nearly completely dependent on state benefits. As a result, poverty risk for residents older than 65 is very high,» adds Kopštāls.
The bank also mentions that looking at the current financial situation it becomes clear that the biggest opportunities for making savings are present for residents aged 21 to 34. The so-called generation X or residents aged 35 to 49 more often have volatile financial habits – excessive spending and borrowing. This often leads to financial difficulties (35% of them basically live from salary to salary). More than half of residents from the post-war generation (aged 50 to 62) already experience regular financial difficulties. Because of that, they are unable to afford making savings.
When asked where they would divert 20 to 50 euros a month if they had them, most respondents mentioned some purchase. The desire the spend money seems to have a tendency to decline with age. Members of the Z-generation (born after 2000), would spend money on some purchase (59%), clothes or shoes (45%) or cultural event (42%), whereas X-generation (35 to 49) would divert the money towards savings (32%).
67% of Latvian residents regularly make savings for some specific purpose. It is notable that in all age groups money is mainly saved to create a safety pillow for some unexpected situation. While younger people often save up money for travel, housing or car purchase (21% and 14%), people close to pension age are more prone to thinking about retirement and how they intend to survive (37% make savings for safety pillow and 15% – for retirement), as concluded in the study.
When asked about how they view their retirement, residents aged 18 to 21 said they believe they will remain socially active and will actively enjoy all the things they have to time now (55%). Only 3% believe they will have to start living more modestly, considering their income will likely take a sharp dive. Residents aged 21 to 34 said they do not think about retirement too often (36%). They also hope their income will be sufficient and that they will be able to continue working (27%). Residents aged 35 to 49 are not too optimistic about their upcoming retirement – 28% say they will have to continue working to survive and cover all costs. Residents aged 50 to 64 said they will have to start living very modestly (44%).
The bank emphasizes that although they are not too active, younger people still understand that their own savings will form part of their retirement funds. Members of Z-generation consider making savings as the second priority (34%) behind state-funded pensions (39%), millennial and X-generation representatives put it on third place, adding that part of their income will consist of their salary (29% and 39%). The post-war generation relies on state pension (72%), plans to work after reaching pension age (40%) and hope for financial support from children and relatives (28%).
«Generally we see the interest for pension size is not large – only one-third of residents are interested in finding out their pension amount. Others are either not interested at all (21%), are not aware of the ways they can find out (15%) or simply believe they won’t live long enough to eventually retire (10%). Compared to 2016, the number of people who are disinterested has increased. Nevertheless, Swedbank’s data shows that the number of private pension clients is on a rise. Last year, more than 286,000 residents were making savings for retirement. Still, savings in pension funds were being made by residents close to pension age – the average private pension fund client’s age was 47,» adds Kopštāls.