The picture of Italy that seems to emerge from the first report of the UniCredit Savings Observatory – Pioneer Investments is that of a country which is still substantially rich but which is experiencing a particularly critical historical period.
Italian families are saving less and less and, in most cases, not because of their specific and voluntary choice but because they are seeing a gradual erosion of income. A substantial gap emerges between the perceived need to save and actual savings. In fact, the number of individuals who believe it is important to save is growing, but at the same time the overall savings of households is decreasing.
The crisis is proving to be long-lasting and with significant consequences. Alone among major developed nations to see per capita income1 fall in real terms to levels comparable to those of more than fifteen years ago, Italy was also the nation to show the worst GDP growth rate since 2008 in Then. If disposable income decreases, household consumption does not decrease as rapidly: savings are lacking because resources are reduced and unavoidable expenses increase (or at least do not decrease).
Among other things, the reduction in national savings has been accompanied since 2002 by a deficit in the current account of the balance of payments and by the growing need to attract foreign capital to finance domestic investments. While a persistent current account deficit may be sustainable in a growth environment, much less so for an economy stalled or in recession.
All is not lost however, the road to a return to rebalancing necessarily passes through a reduction of the gaps in productivity and competitiveness of national companies and a first shock could really come from exports, which could act as a driving force and prime mover for a recovery. If it is true, in fact, that a high level of savings does not necessarily generate greater economic growth, it seems that in the absence of growth it is difficult to maintain high savings rates.
The latest data released by the Bank of Italy concerning the month of July 2012 show encouraging signs on exports, with a clear improvement compared to 2011, even if it is still too early to speak of a real trend reversal of the current part of the balance of payments . If a lot can and still needs to be done on the business side to get the country moving again, even on the household side more needs to be done, in particular with regard to some critical issues that have emerged distinctly in recent years.
A first critical point concerns the amount of savings which for many families could be insufficient, taking into account future spending needs and above all in the light of the recent pension reforms. Italian workers seem to be aware of the fact that they will have to provide for their own social security needs, but they are unable to match these intentions with concrete measures. Participation in supplementary pension funds still appears too low and clearly lower than the average of developed countries (not only in Anglo-Saxons, but also in continental Europe) and arriving unprepared certainly does not appear to be a very attractive prospect. To get a greater number of people to save for retirement, first of all, we could start encouraging and developing a culture of savings, also through specific initiatives aimed at making small savings easier, more convenient and perhaps automatic.
Individuals who are more aware of the consequences of their financial and planning choices could better manage the resources at their disposal. For this reason, interventions aimed at improving the general financial culture would be desirable, intervening not only on individuals already accustomed to the world of finance, but also on the most disadvantaged people, young people, and even students. The introduction of the concepts of finance and planning already at school would have numerous advantages: first of all, young people learn more easily and quickly, moreover it would be less expensive to reach a higher number of individuals and it would be a more egalitarian system. A real investment for the future.
Another important issue concerns the allocation of savings. From an international comparison, it emerges that in terms of accumulated wealth (and also the level of debt) Italian households are still well positioned compared to the major European countries and the United States. In particular, the stock of wealth net of financial liabilities still appears considerable: 8.500 billion euros, equal to over 7,8 times the gross disposable income and 5,4 times the GDP, which corresponds to approximately 140 thousand euros per capita. It is important to ensure that this wealth is preserved, does not lose value over time but rather that it can become a driver of growth for the economy, as well as supplementing household income in times of crisis.
Looking at the composition of the stocks of financial wealth, there is a very low penetration of assets under management (20% of the portfolio), less than half of the shares recorded in France and Germany. Among other things, Italians reacted to the 2008 crisis by further increasing their position in liquid assets, also in line with what happened in the rest of the countries, however, this shift towards liquid instruments does not necessarily guarantee a substantial improvement in the quality of wallets.
The recent and current turbulence of the financial markets can at least serve to make savers more aware and prepared. Even investments considered low risk can sometimes prove to be very volatile and the only way to manage risk effectively is to diversify, combining assets that give stability with those that can offer growth over time, assets that are liquid with other that offer coupon flows over time. Looking at the average composition of Italian portfolios, the path to take still appears long, but it can be supported by experts and professionals. From this point of view, banks and asset managers must be ready to take up the challenge and re-launch a pact with savers which must be based on transparency and trust.
Last but not least, a theme that deserves further study is that relating to young people. The labor market does not seem to be particularly receptive and saving for many of them is becoming a mirage. Furthermore, wealth stocks are highly concentrated in the hands of older generations. An effort to free up more resources to devote to human capital and new entrepreneurial initiatives by young people appears at least necessary, both as an antidote to get out of the current crisis and as an investment for the future. A new pact between generations which, while on the one hand could give greater development opportunities for young people, on the other could also represent that new fuel for economic growth that our country has an urgent need for today as never before.
Moving from the analysis at the national level to the territorial one, a general contraction in savings is confirmed in the three-year period 2010-2012, characterized by a downsizing extended to all areas, with the exception of the North East, where an economic development model, strongly based on exports helped to support income. However, looking at the last five years, the northern regions have experienced a reduction in savings conditioned by a marked slowdown in the economic cycle, while the southern regions have recorded a growth in savings between 2000 and 2009.
However, a more in-depth analysis of the main components from which savings originate, income and consumption, seems to show that this increase in the South, rather than indicative of an improvement in the economic condition, is actually a sign of an inability to confirm precedents spending levels. In reality, southern households have greatly reduced the items of expenditure that can be deferred while they have allocated an ever-increasing share of expenditure to non-compressible consumption. The propensity to consume of households in the South may also have been influenced by various factors including the perception of greater uncertainty about future prospects which may have fueled forms of accumulation for precautionary purposes.
With regard to stocks, financial wealth in Italy remains concentrated in the northern regions, which hold a share of more than sixty per cent of the total. This aspect also allows for a deeper understanding of consumer behavior; in fact, the greater stock of wealth accumulated in the northern regions represents a form of integration of other forms of income and helps to keep the level of expenditure more stable even in less favorable moments of the economic cycle. The composition of financial wealth makes it possible to analyze an interesting aspect linked to the ways in which the various areas of our country decide to use savings. In fact, the open data on a territorial basis clearly show that the fluctuations in wealth are much more marked in the northern regions than in the southern regions.
And it is precisely the performance effect that amplifies these variations, thus offering a further starting point for analysis on the composition of wealth portfolios. The most interesting aspect that emerges from the analysis is the strong propensity that the South shows for investments linked to liquidity. The result is an overall portfolio exposure oriented towards simple financial instruments with a low risk profile but consequently also low-yield. In fact, if a strategy of this type has made it possible to better protect wealth, especially in the turbulence of the financial markets, it does not mean that it always represents the optimal choice. In fact, the greater weight of professional asset management tools, mainly present in the portfolios of savers in the North West, should ensure a more adequate return on capital over a medium-long term.
Finally, the possibility of using more financial information and knowing how to correctly interpret it can help to increase the level of participation in the market for risky assets; from here the need to deepen financial culture seems to emerge, especially in areas where investments in liquid assets seem to weigh excessively.
