Author’s text by the Vice Governor of the CBCG, Mr Miodrag Radonjić for “Pobjeda”


A euro saved is a euro earned

These days we often hear: “Nothing will be the same after Corona!”. Will man’s propensity to spend and save remain the same?

The very act of consuming goods and services, and on the other hand delaying their use, will be the same because our nature has seminally defined it. Still, the way of obtaining, distribution channels, the motivation for savings and consumption, will certainly differ significantly than before the Covid-19 pandemic.

In a modern consumer society, we daily face the most sophisticated methods in creating needs and stimulating the desire to consume. This is done to make such a strong sense of scarcity, and we cannot resist consumption. At the same time, we have learnt that saving is the basis for investment, and therefore, the basis for prosperity.

Over the last few years, we have recorded a significant decline in deposit interest rates, with a simultaneous increase in all types of deposits and all forms of savings. Does this mean that savings have become price insensitive? Certainly not, but the awareness of the necessity to save is more and more present and stronger. Let’s look at the statistics for the previous five years. It is clear that the following has happened in Montenegro - savings have grown while deposits interest rates declined. This data, in a very vivid way, confirms that savings are primarily motivated by keeping the money’s real value and not by earning on the money invested. Simply, if the deposit interest allows us, after the term expiration, to buy the same or a larger amount of goods and services than on the day we deposited it in the bank, the saving has fulfilled its fundamental task. The simplest way to confirm it is to compare interest rates with inflation rates over a more extended period. In Montenegro’s case, we see that interest rates are higher than the rate of money devaluation in the long run.

It is equally essential to have a safe and sound environment in which we keep the value of money earned for the future. In that sense, the Central Bank has a crucial role and task to provide it unconditionally.

The global epidemic caused by the coronavirus has confronted humanity with challenges previously perceived with little or no certainty. Now, we are striving to face the possible future scenario as ready as possible and with as much confidence as possible. Nothing like money may give us security. This will obviously be the most essential motive for future savings, which will be an increasingly important lever and weapon in combating the pandemic consequences.

It is interesting to analyse the events in the markets of Western European countries with a long tradition of savings, such as Germany, Austria and the Netherlands during the pandemic year. On 30 June 2020, household savings in Germany, Austria and the Netherlands increased by respective 21%, 28%, and even 35% compared to 2019 year-end. Take into account that these are sizeable outbound tourist markets. This growth is also caused by the impossibility to travel. Still, the reason for such high growth rates is definitely in the human need to provide security in an increasingly uncertain future.

No matter how much the pandemic has deeply weakened the world economy, especially the tourism and transport oriented economies thereby causing an income drop and loss of jobs, the need to save is growing and will inevitably strengthen. This strengthening will not only refer to the scope but also to the importance and the use of savings instruments, not only in the banking industry but also in insurance. As the demand for savings products will inevitably grow, the offer creators will certainly react adequately. In that sense, we can expect the appearance of new savings products from banks, and savings and insurance products from insurance companies or some combined offers.

Today, the need to reduce uncertainty and refrain from spending today to be ready to face a more adverse situation more safely tomorrow is a matter of upbringing, general culture, and attitude towards money. The tendency to save is not only a rational act but also caused by the cultural environment. We are a part of the southern European region, traditionally not known for savings, but vice versa. This inflicts an additional need for a more robust financial education, learning, and upbringing to build a good and healthy relationship with money and fully understand that a euro saved is a euro earned.