The saving paradox that Spain finds itself in: the more pensioners, the less consumption | Economy

If one thing is certain in 2024, it is that households will not run out of savings overnight. According to the latest data from the Non-Financial Quarterly Report published by the National Institute of Statistics (INE), the level of people saving money increased to almost 14% of their gross disposable income between January and June. The figure, already adjusted for seasonal fluctuations and calendar effects, is the highest recorded in the first half of the year since 2021, when all-time highs were reached as a result of a slowdown in consumption caused by pandemic restrictions. This also reinforces the context in which the Spaniards behave more like an ant than a grasshopper. Despite the apparent positive balance, the worrying thing is that retirees – current and future – are saving at the expense of spending. During this period, for example, family spending would have to rise almost three points more to match income growth, recalls Raymond Torres, Funcas’ economic director.

Indeed, through June, gross disposable income of households and non-profit organizations increased by almost 9% year-on-year to €253.644 million (seasonally and calendar-adjusted data), but spending rose by 6.7%, according to INE data. . Thus, it is clear that the savings rate remained higher than the consumption rate, despite the fact that this was one of the drivers of the economy in the second quarter of the year. In fact, even though the population has gained 1.29 million, private payouts are just over one point higher than in 2019, meaning that individually they still haven’t recovered due to prolonged inflation. crisis and rising interest rates.

But there are other reasons that explain this phenomenon. Miguel Cardoso, chief economist for Spain at BBVA Research, clarifies that although employee incomes are rising, this is due more to an increase in employment than to real wage growth. For many families where the number of people working has not increased, incomes have risen below inflation, limiting their ability to consume more. Thus, although the economy is seeing improved employment, the pace of consumption is slowing as rising employment benefits groups that have a lower propensity to spend, which encourages saving. According to the analyst, these population groups include high-income migrants and especially pensioners.

Spending levels change over the years. Historically, the largest increase in the number of savings accounts in Spain has occurred in middle age because this is the time when debts are reduced, when young people (for example, buying a house) finish paying off debts. In contrast, accumulated wealth is typically spent upon retirement. According to this logic, an aging population would mean that the long-term savings rate would decline and would increase as we transition to a society consisting primarily of older people.

However, this economic maxim will change for two reasons: increasing life expectancy and uncertainty about the sustainability of pensions. According to the Bank of Spain, this could lead to retirees consuming less than previous generations. Falling birth rates would also play in this card’s favor, as families leave less inheritance and this could “increase demand for financial instruments” that generate “lifetime income streams in retirement.”

Consequences of an aging country

Spain is the fourth European country with the largest number of older people. Currently, 20% of citizens are over 65 years of age, and this figure is expected to increase in the coming decades, reaching over 30% of the population in 2050. one million more than 10 years ago, as well as a fall in income from social contributions, which are used to finance these social benefits. These numbers put the nation’s economy at risk and seem to determine the amount of money families accumulate today.

“All indications are that much of the increase in disposable income is going to people who have marginal propensity to spend, meaning that although their incomes are rising, they are spending little,” Cardoso explains. In his opinion, pensioners make up the majority of this group, and this is due to the strong upward revision of pensions. Over those three years, the benefit was revalued by the consumer price index: 3.8% in 2024, 8.5% in 2023 and 2.5% in 2022, allowing them to emerge relatively unscathed from the blow of price increases.

The Bank of Spain itself admits that both the disposable income and benefits of the oldest Spanish population depend almost entirely on the generosity of state pensions. Just so that the money is not spent, but remains in your pockets. “They have lower daily consumption needs because they no longer commute to work and usually eat at home. On the other hand, they think more about their health, and if they are not sure who will help them at the end of life, then it is logical that they save more. Another part of them is worried about their children or grandchildren and wants to leave all their money to them, so they decide not to consume anything,” Cardoso adds.

There is another factor that could explain the increase in savings rates over the past year and a half: the recovery in incomes among the upper class. CaixaBank recalled in a September report that property income had increased significantly in recent years thanks to dividends – company profits that are distributed to shareholders – and other investments that potentially benefited families with greater purchasing power. They, along with pensioners, are the group that saves the most and consumes the least.

This higher savings rate is also influenced by the evolution of inflation and employment growth, as well as the wage recovery that has benefited workers. The slowdown in inflation since last year has come as a welcome surprise to families, who had expected higher prices and adjusted their consumption to take account of the shock, analysts said.

Follow all the information Economy And Business V Facebook And Xor in our weekly newsletter