Citadele Bank

Residents Consider Family, Own Financial Security as Most Important Reason to Save Up Money

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Nearly one-half of Latvia’s residents (40%) have savings, which is 5% more than in 2012, a new study conducted by the Citadele Bank has shown. The main reasons for savings include the financial security of clients and their families (73% of all those who have savings), travel (37%), and old-age pensions (34%).

More residents than in 2012 have been saving up money for purposes of financial security (66% in 2012). This year’s study shows that people in the countryside (78%) are more likely than people in Rīga (70%) to save up money for this purpose, with women (76%) being more likely to do so than men (69%).

Increasing numbers of people are saving up money for travel – 37% at this time, up by 4 points since 2012, with people in Rīga (45%) being more likely to do so than rural residents (27%).

34% of respondents are saving up money for pension purposes (36% in 2012). This is most common among people aged 45-54 (47%), with people in the countryside doing so more often (40%) than people in Rīga (36%).

Although the goals of those who save money coincide with desirable goals, the desire to save up money is greater than a practical ability to do so. 34% of respondents say that they are saving up for a pension, but fully 82% say that they would like to do so.

“Savings are encouraged by the fact that one way of ensuring an equal or even larger pension is to set aside money in a timely way at the 3rd pension level,” says Citadele Open Pension Fund board chairwoman Jolanta Jērāne. “If a client wants his or her pension to be close to or equal to the current salary, then approximately 10% of income should be diverted for that purpose starting at the age of 40. If someone starts to do this at the age of 45, then approximately 16% of income should be used for this purpose. Over the past few years, the fact has been that the average age of people who start to save up money for this purpose is 46.”

One of the main goals of the pension system is to ensure adequate replacement income for retirees, says the director of the Welfare Ministry’s Social Security Department, Jana Muižniece, though she also points out that the future pension of any person depends on contributions, the length of the career in the legal labour market, and participation in all three pension levels.

“One of the motivations for contributions in this regard is that the state offers support for long-term savings,” explains Jērāne. “When payments are made into the 3rd level pension plan, clients can file a declaration with the State Revenue Service (VID) the very next year for a reimbursement of the 24% individual income tax, as provided for by law. The 3rd level pension plan together with accumulating life insurance can double the tax reimbursement. If someone starts to use money from the 3rd level at the age of 55, then capital from accumulating life insurance is available after a five-year period. People buy accumulating life insurance parties mostly to pursue significant goals such as buying real estate, paying for the education of children, or simply ensuring financial security.”

People in Latvia are still learning to save up money, and residents have different understandings as how to save money and how much they can afford to do so, says social anthropologist Aivita Putniņa. “Bank instruments and the social security system place great emphasis on individual responsibility. There are other security nets and different understandings about household economics. Families and friends are seen by many people as a secure support system. From the perspective of everyday life, investments in items and real estate can be seen as savings. Family ties in Latvia tend to be comparatively strong. Parents mostly feel that it is their duty to provide for the education of their children and to support children in this process.”

Putniņa also says that many people in Latvia live on the basis of the “zero cycle” – pay check to pay check. It is also true that generations that receive support later become people who provide support.

The Citadele Bank study about savings habits was conducted from November 12-19, with surveying 750 people in Latvia aged above 18.

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