Saving Belgium with savings

The current health and economic crisis has not deterred Belgians from continuing to save. At the end of June last year, 291 billion euros were in savings accounts, €8 billion more than three months earlier, according to the National Bank.

The Belgian, a homo economicus?

With an insignificant interest rate (0.11% per year for the vast majority of savings accounts) and an inflation rate of 0.74% in 2020 (1.5% in 2021 according to the Planning Bureau), the real return on savings is negative. Parking money in savings accounts is therefore not a rational economic choice.

Looking at this from the positive side, we can make two encouraging observations. First of all, Belgian savings represent a significant part of the public debt (about 60% of the Belgian public debt, which amounts to about €500 billion). Even if the country is heavily indebted, the wealth of its citizens is considerable. In addition, these savings could also be mobilised for a recovery plan after the corona crisis.

Can savings be easily mobilised?

No, for at least two reasons. First, the regulatory frameworks are very strict and the MiFID I and MiFID II regulations provide for the compartmentalisation of investment products. A savings account is a (nearly) risk-free (investment) product. Withdrawing money from a savings account to invest in a (more risky) project therefore requires a change of asset class and is therefore accompanied by administrative requirements that must be met in relation to knowledge of the financial risks. As a result, the interest of potential investors is significantly reduced.

The second reason is to be found in the financial knowledge of the population and a possible distrust of the capitalist system. It is especially necessary to demystify the real risk of investments:

• The stock market is not a casino where, by betting on red, one can win or lose everything in a split second.
• One should diversify a portfolio and not put all one’s eggs in one basket

A recovery plan based on savings can therefore only be achieved by changing attitudes and popularising the basic principles of finance.

Two supports from the economic context

Already in 2015, the government launched a tax credit programme to mobilise savings (Tax Shelter for Startups). Regional initiatives have also recently been launched in Wallonia and Brussels with the “Coup de Pouce” and “Proxi” loans. These programmes have the effect of increasing the net return on investment thanks to the tax credit granted. Such tax incentives could therefore serve as the spearhead of a recovery plan.

Moreover, two major banks (ING and KBC) have decided to impose negative interest rates on savings accounts of the very wealthy. In some cases, this destroys the value of savings in nominal terms. Further intervention by the ECB could accelerate the reduction of interest rates and – who knows – even encourage the banks to impose negative interest rates on all their savers.

To conclude, why should you invest?

On a micro-economic level, investing is about not losing money. Investing actually protects against inflation and the cost of keeping the money. At the intermediate level, investing means saving the restaurant owner or the hairdresser next door. On a macro-economic level, investing means saving Belgium by activating savings for the benefit of the Belgian economy.