Too much spending has led to a collapse in household savings

According to official calculations, the cash reserve decreased by 96% between the last quarter of 2020 and the second of 2021, which will lead to a slowdown in the national economy.

A recent report by Corficolombiana showed that household savings in Colombia fell by more than 96% between the last quarter of 2020 and the second of this year.

Citing Dane metrics, the document indicated that the cash reserves of these cores fell from $26 trillion to $1 trillion.

However, it must be emphasized that this reserve has already been reduced, because at the end of 2019, according to the statistical entity, it amounted to $ 57.7 billion. Then it was confirmed that 19.6% of households had to use these surpluses to resist the onslaught of the health crisis.

According to Professor Raul Cardona, director of Yvette’s financial office, who lived during the confinement period between March and September 2020, there was also a cessation of consumption, taking into account the closure of entertainment sectors such as restaurants, hotels and tourism.

This spending cut dampened savings rates among those who kept their jobs when the country was in that phase.

spending delays

Al-Moallem explained that the Debtors Accompaniment Program (PAD) has allowed many users of credit institutions to defer payment of their obligations and they will have greater liquidity that has also been placed in their capital reserves.

However, in his view, it was logical that the re-opening of the economy would stimulate spending again and gradually reduce these savings.

According to Jaime Jaramillo, co-founder and emotional finance consultant, “There is a very psychological phenomenon here because when I stop restraining myself, and then the economy reopens, it is like a horse is open in a barn and it is running out of control.”

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“People got into this rhythm of spending because spending is great. But it’s dangerous because we’re already spending savings — and more likely — now what follows is that people are going to start accumulating debt.”

Although it is worth clarifying that according to the Social Pulse Survey, 77% of families in Colombia do not have enough income to save.

In this context, Corvicolombiana warned that the depletion of family reserves, along with the growing indebtedness, will be especially important in the context of the increasing cost of living, given, for example, the rise in food and transport prices.

looming dangers

Jaramillo noted that the rise in prices of basic goods and services has occurred in part due to the international logistics and port crisis which has had negative impacts on industries.

He said, “This storm could end badly because it has the potential to disrupt the global economy and we could easily go into a recession. If we had no reservations, we would not be prepared for an eventual crisis time.”

This same estimate is shared by Raul Avila, professor of economics at the National University, who emphasized that having less money in reserve can cause financial weakness in new periods of economic stress.

He added that “the lack of reserves slows down economic growth because people will no longer be able to spend on luxury goods, clothing, entertainment and recreation.”

This approach of Professor Avila is supported by Corficolombiana, who asserted in his report that domestic consumption contributes 70% to the generation of wealth in the country.

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Indeed, in the aforementioned document, this entity estimates that in the last quarter of 2021, “family consumption will begin to adjust its dynamics due to the exhaustion of the savings accumulated during the epidemic.”

We’re back to the same thing

For Professor Raul Cardona, these measures reflect a return to the habit of not generating any kind of savings, as various studies of the financial culture of Colombians have already indicated in the past.

“One of the lessons that we had to take away from the pandemic is that we must have resources for the times of difficulty, and in this way we avoid financial weakness,” the researcher said.

Likewise, he pointed out that for savings and other destinations, due to lack of education, the average citizen tends to underestimate them.

For example, he emphasized reserves for old age, because in his view, although young people believe that no one will retire in the traditional system, “everyone is responsible for ensuring their own retirement.”

“We have forgotten the repercussions made in restrictions around living with basic and discounted expenses and are back in the same situation of not having highly organized finances and our inability to meet savings goals,” he said.

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