Norwegians are saving... but not enough

by Martin Wik Sætre, on 11 August 2020 12:12

(2-3 minutes read)

Statistics Norway (SSB) is reporting record high saving rate for first quarter 2020. Even with a minor reduction in disposable income a large drop in consumption gives a seasonal adjusted saving rate at 12,7 %, the highest level since the quarterly analysis began in 2002. How can the financial institutions help their customer to get the funds invested?

Saving is defined as all income that is not consumed for a given period (adjusted for changes in pension pay rights). If a person has a monthly income of 15 000 and spends 12 000 on bills, food and fun, that leaves 3 000 in savings that month. The quarterly saving rate has been very volatile over the years with a average rate at 6,42% and a standard deviation of 3,1 and a minimum value of negative 2 % (Q2 2006)

Quarterly saving rate Norway (SSB)

Figure 1 - Quarterly saving rates

But where does the money go?

If we look at the total wealth for households (excluding students) from 2010 to 2018 there has been a substantial shift in how the wealth is invested. Looking at the total values and the annual percent change for bank deposits vs. securities (stocks and funds) we see a steady increase in the amount invested in securities and also an decreasing annual change in the total bank deposits (figures 2 and 3). Of course much of the increased wealth in invested assets are driven by a booming market, but regardless this clearly indicates a change in preference in the population. People want more of their funds invested in assets.

Wealth distribution Norway (SSB)

Figure 2 - Total wealth value, MNOK (Source: SSB)

Yearly change in wealth distribution Norway (SSB)

Figure 3 - Annual change in total wealth value (Source: SSB)

Corona and pension

There are two strong forces at play, that should support this change further into the future. Corona plays a role in the increased saving rate for Q1 2020, through lower consumption. This is a sign that people are more reluctant in spending their income at a the rate they normally do. After a decade of booming markets and low interest rates, people now see the need to build buffers above the level of being able to replace a dishwasher. Finansavisen reports that the rate of Norwegians invested in funds has grown from 26 % in 2001 to a record high 40% in 2020. That means that 60 % is still not investing. This is a huge opportunity for the financial institutions to increase saving plans sales.

Pension has changed. More media focus, pension reforms and changes in regulations have increased awareness in the population. Awareness that government and employer pension is not enough to keep your income level at retirement day. Personal saving plans are needed on top to support your current lifestyle. Sparebank1 claims that 6 out of 10 women does not save for their pension. A huge problem for the society and another great opportunity for financial institutions to sell saving plans and help customers to a happy retirement.

Human vs. digital advisory

It is very clear to the financial institutions we talk to that automation is needed to reach the saving potential in the private market. The companies only have a limited amount of human advisors available and of course they prioritize their efforts towards the customers with the highest value. That leaves a large amount of their portfolio unattended. This is where digital advisory makes a huge difference. Not as a competitor to the human advisor, but as a contribution to serve more customers. Digital advisory solutions scales indefinitely with limited cost increase. It is a very good investment case,  and also a great way to ensure that all of your customers get access to proper saving advice.

We can help!

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