Inflation and the cost of living top worries in Bank of Ireland Savings & Investment survey

Savings & Investment Index drops to lowest level since survey began

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In Q3 2022, Bank of Ireland’s ‘Savings and Investment Index’ dropped (to 87 in August from 90 in May), with consumers citing inflation/cost of living as their biggest worry (29% in August v 22% in May), a trend mirrored in similar international surveys.

There has also been a significant drop in the proportion of consumers who feel that they are saving enough, reflecting the impact of rising prices and the back-to-school costs faced by many households.

Both the war in Ukraine and Covid have dropped back considerably in the list of top concerns (from 32% in May ’22 to 17% in August), while Covid has almost dropped off the list of concerns with just 3% seeing it as their biggest concern, below climate change (16%), global recession (14%) and the cost of housing (12%).

Top concerns: August 2022 (May figures in red italics)

The Index also continued to highlight growing differences in concerns between generations (see above). Inflation and the cost of living rank highest amongst both 30-59 year olds and 16-29 year olds and while it increased significantly amongst the 60+ age group, this age bracket was alone in ranking the war in Ukraine top of their concerns.

Savings drop 

Consumer attitudes to saving are changing significantly in the face of rising inflation. In contrast to the pandemic period when the Savings Index reached a peak, the most recent survey illustrates the impact of inflation.

Back in May 2020, the index for a ‘Good time to save’ reached a high of 117 whereas by August 2022 it had dropped to 92. What’s more, when asked whether it will be a good time to save in 6 months that score drops to 85, the second lowest level since 2019. Interestingly, more people are now saving but the “savings amounts” sub-index has sharply declined with less people feeling they are saving enough. The index for “Do you save” rose 6 points to 96 but the index for “Savings amount” dropped 12 points to 78, its lowest ever level.

The survey results continue to suggest consumers may be trying to save in the face of uncertainty but they are struggling to do so, given the rising cost of living.

Investment environment 

Irish consumers are showing themselves to be uncertain about the economic environment and when asked whether they see it as “a good time to invest”, the responses have dropped to a level below what we saw during the pandemic and after the Russian invasion of Ukraine. At the same time, 38% of people now think that they are investing “nowhere near as much as they should” the highest level since the survey began.

Confidence in retirement slips for the third quarter

When asked about financial preparedness for retirement, the answers haven’t moved significantly. However Irish people are far less confident about how comfortable they will be in retirement, with this part of the index dropping from 125 in November ’21 to 107 in August ’22.

“Rising inflation is having a significant impact on how people view their finances,” said Kevin Quinn, chief investment strategist at Bank of Ireland.

“So much so that despite the challenges presented by Covid and the Russia-Ukraine war, the impact of rising prices is possibly the most significant in the past three years in terms of how people view saving and investing. With interest rates still at low levels and inflation at c.9%, consumers clearly recognise that real purchasing power is quickly eroding and it is little wonder that it has caused people to re-evaluate. For some the environment is proving challenging enough that they have scaled back on their savings.

“Our survey also illustrated the different strains faced by different age groups. Working age and younger consumers are the most impacted by the rise in the cost of living, at least thus far. With investment markets being so volatile right now – even despite gains made in the summer months – consumers remain nervous about the wider economic environment and there is a conservative tone which reflects the conversations we are having with so many customers.  Inflation is also impacting how Irish consumers see their retirement years, with a lower level of confidence about how comfortable they will be in retirement.”

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