Weekly SmartPills #11
THE PANDEMIC AND THE PROPENSITY TO SAVE: AN OPPORTUNITY OR A THREAT FOR THE ITALIAN ECONOMY?
The pandemic has had a significant impact on the Italian population, intensifying a characteristic that has always distinguished it: the propensity to save. However, the accumulation of untouched savings has generated a series of challenges and uncertainties for the country. In this article, we will explore the reasons preventing Italians from using and investing their savings, as well as the possible consequences of this phenomenon on the real economy.
Obstacles to the use and investment of savings
A study conducted by Il Sole 24 Ore in 2018 identified several reasons that prevent Italians from using and investing their savings. The uncertainty of financial markets, poor financial literacy, and the fear of future tax increases represent significant obstacles for savers who fear losing their money. In recent years, the fear of losing one’s job and economic instability have further fueled concerns, thus consolidating the trend of untouched savings.
Italian savings reach record figures
In Italy, savings accumulated in current accounts have reached an extraordinary figure, exceeding €2,000 billion. This amount represents a considerable proportion of the national GDP, raising questions about the implications of such a massive amount of unused liquidity. Beyond the lack of profitability, this massive exposure to liquid money could have repercussions on the real economy, generating a paralysis of the country’s productive system.
What is inflation?
Inflation is an economic phenomenon characterized by a general and sustained increase in the prices of goods and services in a specific geographic area over time. In other words, inflation represents a decrease in the purchasing power of money, as the same amount of money can buy fewer goods or services compared to the past.
The causes of inflation can be diverse. Among the main ones are excessive demand for goods and services compared to the available supply, an increase in production costs, such as the cost of raw materials or labor, or exceptional events such as economic crises or natural events that can affect the supply of certain goods.
Inflation can have both negative and positive effects on a country’s economy. Negative effects include the decrease in people’s purchasing power, as prices rise faster than incomes, and economic uncertainty, since inflation makes long-term financial planning more difficult. On the other hand, inflation can also stimulate economic growth, as it can encourage spending and investment in the short term.
Monetary and fiscal policies adopted by a country’s economic authorities can be used to manage inflation. For example, central banks can adjust interest rates to influence people’s and businesses’ spending and borrowing, while the government can intervene through fiscal policies to regulate aggregate demand and control inflation. The goal is to maintain a balance between modest inflation that promotes economic stability and excessive inflation that can be harmful to the economy.
The threat to Italy
Inflation threatens untouched savings. In a period of high inflation like the current one, leaving savings idle in current accounts can prove to be harmful. Inflation, in fact, erodes purchasing power over time. Keeping a significant amount of liquid money could result in a real loss of savings value, thus diminishing the purchasing capacity of Italian citizens.
The pandemic has amplified the tendency of Italian citizens to save, but this phenomenon presents risks and challenges for the country's economy. The fear of uncertain financial markets, poor financial knowledge, and the possibility of future tax increases prevent Italians from using and investing their savings.
Moreover, the enormous amount of unused liquid money could lead to a paralysis of the national productive system. In a context of high inflation, leaving savings idle in current accounts can erode citizens' purchasing power over time. It is essential to address these challenges and encourage a conscious and responsible use of savings, in order to promote sustainable economic growth for Italy.