An Saoi: Hidden inside the Central Bank’s monthly statistical reports is an analysis of household cash holdings in banks and credit unions (Table B2.2). These figures seem to tell a very different story to the one being broadcast by the stockbroker employed economists. While they are suggesting that there is a massive increase in saving underway, cash held by households is declining.
I have extracted the figures for the past three years, which provide a potted history of the period. Cash saving peaked in May 2007, the final month of the SSIA scheme. Cash held has fallen 15.5% since then. In 2008 the banking crisis saw substantial withdrawal of €8,600M between July and December. While savings had increased steadily for the first six months of the year, perhaps as money moved back from the mattress to the bank branch, the decline in the past two months has been substantial
The importance of this decline in cash deposits held by households cannot be overstated. Most ordinary people use banks or their local credit unions for regular saving and immediate access to this cash when necessary is crucial to help people pay unexpected bills. In due course, the slimmed down Irish banks will have to move to sourcing cash savings to balance their lending books. This will have to come from domestic savings.
Other assets normally included as part of household saving are not easily accessible, if at all. Even those that can be cashed in will normally incur a substantial tax charge on any withdrawals. Pensions are taxable as earned income and investments held through investment funds may incur an exit tax. Capital withdrawals from housing stock are one of the reasons we are in the mess we are in.
A Eurobarometer survey on the public’s perception of the social effects of the current crisis, available here, suggests that many people are beginning to struggle to make ends meet with 19.6% suggesting that they would be at high risk of being able to meet an unexpected bill of just €1,000.
There maybe some signs that people are paying off debt, which is reflected the decline in spending. However, this may be due to lack of access to new lines of borrowing rather than any concerted effort to get personal finances in order. In the case of credit cards we have had 12 months of continuous decline in their use, but no decline in the outstanding balances. The Central Bank’s explanation of decline in private sector debt is sobering,
“The vast majority of this annual decline is a result of valuation effects, such as write-downs of loans and increased bad-debt provisions given more difficult economic conditions…”
Further cuts in expenditure are going to see a greater squeeze on personal savings and pressure on organisations like St Vincent de Paul society, who report a 30% increase in calls for assistance.
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