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In the wake of a long period of economic growth, savings have gone up – but so has indebtedness. A growing number of people are struggling: every fifth European needs to borrow in order to pay bills. That group has increased from 15% three years ago to 20% this year. In the Baltics, the situation differs from country to country. Every third Latvian has borrowed money to pay bills. In Lithuania, the situation is comparable to the EU average (19%), while in Estonia the numbers are relatively low and only 12% of consumers have borrowed money in the last 12 months in order to pay bills.
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In the last 12 months, 45% of Latvians, 39% of Lithuanians and 32% of Estonians have failed to pay one or more bills on time (Greece is at the top (or bottom) with respect to paying bills with 66% of the population failing to pay one or more bills during the last 12 months). Forgetting is the most common reason cited for not paying a bill on time, followed by a lack of funds.

In order to pay bills, people borrow money not only from financial institutions but also from friends and relatives. These unofficial loans are a big part of the economy – as much as 40% of Europeans lend money to friends and family. In the Baltics, 44% of Estonians, 42% of Latvians and 39% of Lithuanians have lent money to friends and family in the last 12 months.

Intrum, Europe's largest credit management firm, has presented a new European Consumer Payment Report based on a survey of 24,398 European consumers. Intrum, who are in contact with 250,000 indebted consumers throughout Europe every day, sees a widening gap in the wake of the growing economy. While more and more Europeans are able to save money every month, the group that needs to borrow to pay bills or buy things for their children is also growing.

The number of Europeans able to save money on a monthly basis has increased from 50 to 59% in two years (in 2018 compared with 2016), while the minority who needs to borrow in order to pay bills has grown every year since 2015, from 15 to 20%.

In Latvia, the average amount of funds, borrowed by inhabitants during the last 6 months of this year to pay for invoices, has decreased since the previous year (from EUR 402 in 2017 to EUR 325 in 2018), while it has increased in other Baltic States: from EUR 447 in 2017 to EUR 518 in 2018 in Lithuania, and from EUR 720 in 2017 to EUR 965 in 2018 in Estonia.

At the same time, stronger GDP growth in the EU in 2017 and 2018 has affected household savings: 42% of Latvian respondents save money every month and monthly savings increased more than 2.5 times from 44 euros in 2017 to 118 euros in 2018. The same is true in Lithuania, where 55% of the population save every month (monthly savings increased from 67 euros in 2017 to 174 euros in 2018) and Estonia, the Baltic champion, where 62% of population saves every month (monthly savings increased from 94 euros last year to 201 euros in 2018).

The results also show that more than half of the consumers surveyed for the report wish they had learned more about household finances in school, and more than 7 out of 10 parents with minor children at home say that schools should teach children more about how to manage their household finances.

Ilva Valeika, Intrum managing director, Baltics.

Our daily experience and conclusions in this survey suggest that the financial discipline is a problem not only for the inhabitants of Latvia — inhabitants in most European countries admit the need to educate both themselves and their children to be able to make financially correct choices. This is the responsibility of both consumers themselves and the financial sector as well as companies to act in a sustainable manner and to educate consumers to prevent them from ending up in financial difficulties or to resolve these difficulties in an honest and responsible manner, if such situation has already occurred.

Andris Saulītis, European University Institute's doctor degree holder in experimental sociology, researches financial behaviour

It's a common mistake to believe that bills not being paid on time is a specific of certain groups of people. Our survey data shows that a great amount of people in Latvia were late in fulfilling their obligations over the past 12 months, regardless of their age, gender or income. Moreover, to many the problem isn't so much due to lack of money, but simply forgetfulness. Obviously delaying the return of debt is a bigger issue in Latvian culture than usually recognised. There is, however, simultaneously a high level of morale in Latvia - almost all respondents (89%) believe that bills should be paid on time. Even a majority of those who haven't paid a bill over the past 12 months hold this opinion. In other words, most people's opinions don't align with reality.

Pēteris Strautiņš, Luminor Economist

Savings in Latvia are growing; furthermore, strongly. Household savings will increase by approximately 8.5% this year, and their amount might exceed seven billion euro for the first time by the end of this year. The readiness to increase savings is at the highest level ever. This can be explained by several circumstances. Society is getting old and, thus, is becoming instinctively more cautious. Income growth increases the capacity to buy or construct houses, to buy cars. However, in order to do that, the first instalment for a loan or lease is necessary. Savings created based on caution assumptions may pursue two goals. Firstly, to level short-term income fluctuations. In such case, they can also be used to improve the payment discipline. Second, to level consumption in the course of life, getting ready for a potential drop of income in old age.

Tonu Palm, Luminor Estonia,

The consumer remains firmly in the driver's seat in Estonia with the labour market running tight. Estonia's brisk economic growth has resulted in bold labour demand, which has driven the unemployment rate down to 5%. This is already not far from the previous 07/08 boom year lows. Together with strong wage growth, this has created a foundation for brisk consumer confidence. Consumers are active both in saving and borrowing with a continually high appetite for new cars and housing units.

There is gradual economic growth ahead, but the consumer is the last guest around the table to feel it via wage growth. Consumer expectations for present and future inflation currently run hot, which is a detriment for the economy. The recent drop in global energy prices, if maintained, should actually provide a tailwind for the retail sector next year.

The most recent tense month in the external sector coupled with high inflation has also brought about some headwinds for consumer expectations, which have only marginally drifted lower from very brisk levels by historical standards. In particular, there have been some softer expectations for making major purchases (at the present time), which can be partly linked to the hot summer days we experienced in the Baltics. New mortgage volumes did actually pick up speed in October after the summer season and delivered 20% y/y growth. The growth rate of other consumer loans has slightly softened from last year's brisk 10% pace to 4%. Consumers are lured by fancy e-commerce and shopping offers with new shopping centres joining the year-end consumer party. Consumption at 4% y/y in Q2 is moving at a reasonable pace with savings growing a notch faster. It is definitely a bias towards more optimism, but not excessively so.

Žygimantas Mauricas, Luminor Lithuania

The gross saving rate of Lithuanian households increased substantially during the post-crisis period, but still remains well below the EU average and is the lowest among the three Baltic States. More worrying is that the saving rate peaked in 2014 despite accelerating household income growth. The savings rate stabilised primarily due to increased household expenditure for housing and consumption of durable goods as well as mounting inflationary pressures. Another worrying tendency is that Lithuanian households are among the most passive investors in the EU and prefer to keep their savings in cash or savings accounts, hence generating no investment returns. Those that do invest strongly prefer local real estate, which increases concentration and liquidity risks.

About Intrum European Consumer Payment Report 2018

The survey involved 24,398 respondents between the ages of 18-65 in 24 European countries and featured questions concerning household finances. It was conducted in September 2018.

For access to the full Consumer Payment Report, please go to www.intrum.com