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12/11/2024

Author: Danijela Vukajlović-Grba, an Adviser to the Vice-Governor

A love-hate relationship is a symbolic explanation of something most people feel towards saving. On the one hand, we desire to have money saved at our disposal, and on the other hand, we do not prefer saving because it limits us from spending money both for basic life needs and for our small or big pleasures. How do we survive such a contradictory “relationship” with savings and simultaneously build a functional relationship? Sometimes, this dilemma is the “million dollar” question. However, the answer is relatively easy when we have a specific goal that requires collecting funds we currently do not have - for travel, education, buying a car and the like. Otherwise, we tend to postpone saving until we avoid it.

The uncertain times in which we live and the possibility of sudden events that require our prompt financial response are some of the primary reasons why saving is imperative nowadays. Recent economic, financial and health crises and war events, which have contributed to the increased prices of basic groceries and often resulted in employment loss, have changed our perceptions of supporting savings as a way to provide short-term security primarily. At the same time, these events also dissuaded us from saving due to the faster decline in the value of money and the shortening of the time horizons in which we look at our lives, which made us focus more on consumption. Consumerism also contributes to this as an essential feature of societies like Montenegrin and more developed ones.

Namely, the media and social networks are constantly “flooding” us with the latest “must have” trending products, very often accompanied by an appropriate advertising message “because you deserve it”. In such conditions, choosing between saving and spending can be explained by an old saying - a love relationship doesn’t mean giving up one’s liberty but renouncing access freedom. Similarly, saving is not, or at least should not be, the loss of the pleasures that consumption allows us, but the renunciation of excessive consumption - and spending on something we do not necessarily need.

When we do manage to resist spending on unnecessary things, most people face another challenge - they lack the financial knowledge to consider different forms of savings. During the period of acquiring new financial knowledge and gathering information, it is wise to stick to proven and safe forms of savings, such as savings in banks, but also to be additionally informed about other types present on the market, such as investing in securities, life insurance, etc.

Knowing the importance of improving knowledge about money, personal finances and savings, the Central Bank of Montenegro (CBCG) and other financial market actors in Montenegro have been investing significant efforts in increasing the financial education of Montenegrin citizens for years. However, the most important efforts of the CBCG as the banking system’s regulator and supervisor relate to establishing and maintaining a safe and sound banking system as we have today in Montenegro.

An essential factor in this stability is the protecting deposits in credit institutions, provided by the Deposit Protection Fund of Montenegro to all residents and non-residents who have accounts opened in these institutions in situations prescribed by law and up to 50,000 euros per credit institution, that is, the bank. The success of these two institutions’ joint efforts and the positive perception of the Montenegrin banking system and the savings safety is also evidenced by the very high level of household deposits in Montenegrin banks of 2.0 billion euros at the end of September, which is constantly increasing.

Since Montenegro still does not compile the population’s financial assets and liabilities statistics, the extent of Montenegrin citizens’ savings in other forms, e.g. shares, gold or cryptocurrencies cannot be accurately assessed (we only know that they held 23.6 million euros as life insurance with insurance companies licensed to operate in Montenegro in 2023). Such statistics available in EU countries indicate that they have a relatively wide range of household savings types. However, in 2023, despite this, cash and bank deposits in EU countries still had the second largest share (31.2%) after shares and investment funds (35.9%), while pension plans, insurance and standardised guarantees accounted for 26.9%, bonds and financial derivatives for 3.4%, and the remaining 2.6% for gold and other types of financial assets. Generally speaking, the tendency to keep savings in bank deposits is higher in countries with relatively low GDP per capita and financial literacy, i.e. with underdeveloped financial markets and the insignificant role of capitalised pensions in national pension systems. In crisis economic conditions, the tendency to save in cash and deposits additionally increases.

The increased personal savings in Montenegro in the future will depend on the individual income growth rate and living expenses. The structure of personal savings in developed EU countries shows no doubt that, due to the high security, savings in banks will remain the prevailing form of long-term saving of Montenegrin citizens’ money. Security is undoubtedly the most essential quality of any savings; however, we are sometimes willing to sacrifice it for higher earnings, usually accompanied by higher investment risk. There is no doubt that developing Montenegro’s economic and financial system will expand the spectrum of possible forms of savings, from bank deposits to other forms of savings, sometimes those carrying a dose of risk, such as shares, investment fund units, pension plans, cryptocurrencies, etc. Therefore, always remember that the share of such savings in our total personal savings should be relatively lower than the safe part of savings, such as savings in banks. Making such decisions requires improving financial knowledge and skills, obligating the CBCG, other regulators, and financial market participants to dedicate themselves more significantly to financial education and financial literacy.

At the same time, we are responsible for exploring safe and potentially profitable ways of saving within the economic possibilities available to ensure long-term financial stability and security.