Financial health, consumer expectations, and behaviour of households have a significant impact on the lending market. According to data sourced from the Bank of Lithuania, loans to households account for more than 50% of the micro financing loan portfolio which displayed significant growth following the COVID-19 pandemic.
For a clear understanding of households’ financial behaviour and underlying causes, the Bank of Lithuania made a survey examining the above mentioned issues. The survey revealed that the majority of households assess their financial position as average or good, however, the proportion of those who rate it as poor has increased over the year.
About 68% of respondents were positive about their financial situation. This is 9 p.p. less compared with the pre-pandemic period. The best performers were persons aged between 30-49 and located in smaller cities (75%). The share of households with poor financial health increased by 12 p.p. over the year. The majority of those respondents declared they have enough money to buy food, however, they have no money available for clothing and other basic needs.
It’s necessary to note that some households stated their income increased over the year (22%) however, they were outnumbered by households reporting a decrease (43%).
The majority of respondents declared that lower income negatively impacted their living situation. The share of households experiencing a decline in income climbed from 29% to 40% over the year. Moreover, 16% of households stated that their expenses increased (+4 p.p.) and they suffered loss of employment.
On the other hand, due to limited spending opportunities during the quarantine period, more households were able to reduce their expenses, creating savings opportunities. During the year, the share of such households increased from 14% to 21%. Older households were much more resistant to the negative effects of quarantine than young or middle-aged households.
The share of households budgeting and trying to save money is stable, however, fewer were able to actually generate savings. About 59% of households stated they successfully increased their savings, however, this is 10 p.p. less compared with pre-pandemic times.
Usually, the respondents were able to save between 31 to 150 euros per month (44%). This share hasn’t changed over the year, however, there were more households that saved lower amounts and fewer households having larger monthly savings.
Approximately 25% of respondents consider debt to be a burden, which is 11 p.p. less than a year ago. More households expressed an opinion that their financial liabilities to banks is not a burden. The loan was a burden to younger (aged 18-29) or older (age > 50) respondents, while middle-aged households had no problems making debt repayments.
Fewer households had trouble fulfilling their financial obligations. In pre-pandemic times this share was larger. The main reasons for defaulting were a decrease in revenue (34%), job loss (23%) or family increase (23%).
The proportion of households planning to take a loan has risen and almost returned to pre-pandemic levels, and most borrowed funds will be used for larger purchases. For example, 37% of borrowers plan to make investments into real estate (apartments, houses, land) and 27% are aiming to buy a car. Only 14% of respondents will borrow for consumption and 11% for house repairment.
The results of the survey confirm that the uncertainty of the customer base during the first COVID-19 quarantine period is diminishing. Households are recovering and optimistic, and planning to borrow more to make bigger purchases in the near future. It’s likely that smaller savings, a willingness to protect against unforeseen events and expectations of higher prices will take priority over consumption in the immediate circumstances.