Point of view Nicole Notat on raison d’être
Chair of the Vigeo Eiris environmental, social and governance (ESG) ratings agency and co-author of the “Entreprise, objet d’intérêt collectif” report on the collective-interest role of businesses commissioned by the French Economy Minister Bruno LE MAIRE.2019/10/18
The French want to avoid any financial stress
This last column of the season cannot change the past, but it can attempt to explain how the French are thinking about the future, at a time when the report on pension reform is again fuelling every conversation. As this summer’s heat continued unabated and the drought worsened, a cold snap has put into perspective the French confidence about the future.
And, as usual, uncertainties related to the economic environment are encouraging our fellow citizens to put aside some money, with a distinct preference for real estate and low-risk investments. Le Figaro provides some detail: “During periods of uncertainty and crisis, the French cautiously put money aside. Last year, their savings rate increased to 14% of disposable household income. “The economic slowdown, erosion of gains in purchasing power and the social situation are all factors boosting an increase in short-term savings,” observes the Cercle de l’épargne, a French think tank, in a recent memo.
And the trend continues this year. The bank BPCE forecasts a household savings rate of 15% for 2019, boosted by an uncertain economic environment. A poll conducted by Ipsos TNS Sofres for the bank confirms this assumption. Households remain pessimistic about their individual financial situation, even though 44% of those polled now believe that their purchasing power is going to increase due to measures taken by the government in favour of the “yellow vests”; three months ago, the figure was 38%. Two out of three people surveyed intend to save some money over the next six months.” This wait-and-see attitude is twice as true of a somewhat traditional choice of investments. Risk-free assets, like current accounts, from which savings can be withdrawn any time, remain the preferred investment for the French, even though they do not pay a return.
In May, the French had left €15bn languishing in such assets since the beginning of the year—€2bn more than in life insurance. “Savers believe it is in their interest to transfer their savings from a gross interest rate of 2% to 3%, assuming a 1.5% inflation rate, said Éric Buffandeau, Deputy Manager of research at BPCE. The Livret A savings account yields only 0.75% and euro life insurance funds 1.8% on average.” Le Figaro attempts to explain the reasons: “Livret A accounts and life insurance are the two preferred investments once they get into this wait-and-see attitude. In May, they had already invested €13bn in life insurance since January (vs. €10bn for the same period last year) and €7.5bn in Livret A accounts (vs. €4.7bn in May 2018).
“In this unusual environment of extremely low rates, there are two different attitudes among savers,” says Alain Tourdjman, Director of Economic Studies and Forecasting at BPCE. "Most households are ultimately accustomed to these low yields and believe the Livret yield is relatively good considering their liquidity and low risk. More affluent savers, on the other hand, look for alternatives and an increasing number are planning to invest their savings in equities.” The magazine Investir attempts to further decipher this conservative attitude of the French: Nearly nine out of ten French people (89%) have a savings product, according to an OpinionWay survey for Altaprofits. And 67% of them have several.
It’s no surprise that the Livret A is the most subscribed, “with an ownership rate of 22%”, despite its low 0.75% yield. For all investment vehicles, the French saved on average €44,217, an amount that varied depending on the region. Little surprise that residents of Nouvelle-Aquitaine rise to the top of the most frugal savers, with €51,701 on average, followed by residents of Ile-de-France (€51,064). The most spendthrift were residents in the Central Loire Valley (€30,060).
But, remarkably, 69% did not know how much their savings paid them! Asked about their motivation to save, 46% of the French say they save to meet common, unexpected expenses (car problems, replacing household appliances, etc.). And 24%, to separate their savings from their current account. Another 22% save to finance long-term plans (to buy real estate, prepare for retirement, pay for their children’s education, etc.). Finally, for 7%, their savings are devoted to short-term plans (travel or paying for a car)”. The French want to save themselves from possible future hardship. They have learned the lessons of past crises. Which isn’t to say that their money is going to be hidden away. But they certainly won’t burn it up in the middle of summer.