Savings boom brings household net worth to record high

Household savings increased by €1bn in fourth quarter as pandemic curbed spending

Household net worth is considered a crude measure of prosperity as it hides the distribution of household assets and liabilities across income groups and age categories. Photograph: iStock

Household net worth is considered a crude measure of prosperity as it hides the distribution of household assets and liabilities across income groups and age categories. Photograph: iStock

 

Household net worth hit a record high in the fourth quarter of 2020 as savings continued to rise and housing assets increased, new data from the Central Bank has shown.

The final three months of the year saw household net worth rise by 2.9 per cent, reaching a high of €855 billion, or an average of €171,769 per capita.

This was driven by a €1 billion increase in household savings during the fourth quarter, bringing the latest figure to €7.4 billion as the pandemic restricted spending and triggered precautionary saving.

Housing assets also increased by €11.9 billion during the quarter, with liabilities remaining relatively stable.

However, despite the increase, the Central Bank noted the figures do not reflect the overall distribution of wealth in the economy.

Household net worth is calculated by adding the total value of the housing stock and financial assets – such as cash savings, shares, pensions and possessions such as cars and antiques – and subtracting debt owed or liabilities.

It is considered a crude measure of prosperity as it hides the distribution of household assets and liabilities across income groups and age categories.

Household debt as a proportion of disposable income was 2.2 percentage points lower at 104 per cent, as disposable income increased over the quarter and debt declined.

Annual increase

Over the year, net worth increased by €49 billion, continuing the trend seen since 2012. The increase came despite the impact of the pandemic on household finances, which resulted in a total fall in pay of €5.1 billion over the year. However, a €11.1 billion rise in social transfers and subsidies such as the Pandemic Unemployment Payment and the wage subsidies, along with a fall in consumption of €9.2 billion, mitigated the impact.

Private sector debt as a proportion of GDP rose to 225 per cent in the fourth quarter, an increase of 3.5 percentage points.

The domestic economy continued to be a net borrower in the fourth quarter, continuing a trend seen for eight previous consecutive quarters. Net borrowing was €2.8 billion, down €9.5 billion on the previous quarter, with the net borrowing position at its lowest level since the third quarter of 2018.

Government debt fell by €5.9 billion during the quarter, but its net financial worth also decreased by €4.1 billion, triggered by a €9.2 billion fall in financial assets.