Consumption and money savings by household income group

The slowing growth in household consumption in nominal terms and its deepening decline in real terms are a result of subdued growth in nominal disposable income, higher inflation due mainly to tax changes, and weaker consumer confidence. The gross saving rate has increased (see Box 1 in section III.3.1). To understand the evolution of consumption, it is important to examine whether these tendencies are being displayed by most households or whether they are concentrated in particular income groups.

Declining consumption expenditure has been recorded for all income groups of households, but the fall has been most significant in the lowest income decile. 1 While nominal consumption growth in high- and middle-income households was around zero or slightly positive in 2011, consumption of low-income households declined (see Chart 1). The shares of expenditure on most consumption items (most notably household equipment and furnishings) in total consumption have recently decreased, while the shares of expenditure on housing, water, energy and fuels and expenditure on transport have increased considerably. In all household income groups, weaker nominal income growth has been reflected in lower consumption growth (see Chart 2).

At the same time, households have reduced their debt, probably as a result of perceived higher vulnerability in the event of future shocks. In recent years, the ratio of the annual balance of loans accepted and repaid to income has been negative on average for low- and middle-income households and slightly positive for high-income households. The observed growth in the outstanding amount of loans is therefore concentrated in the higher-income category.

The consumption behaviour of households also reflects the extent to which the income groups generate savingsrelative to their income. While for high-income households the ratio of money savings (as measured by net new deposits) to income is higher than before the financial crisis and that for medium-income households is showing an only weak upward trend, the same ratio for low-income households remains negative, albeit less so than in previous years (see Chart 3). In recent years, households have faced labour market shocks and have therefore been creating higher money savings for precautionary reasons since 2008.

The ratio of money savings to income in the lowest-income group of households has been negative or close to zero, reflecting mainly the representation of the unemployed and other socially weak households. The ratio for pensioners is around 4%. Low-income households therefore have a very limited ability to smooth their consumption over time at the expense of savings if their real purchasing power drops (moreover, they are generally more overindebted2 – roughly 30% of households in the two lowest income groups were above the excessive debt threshold in 2011). 3 In addition, overindebtedness has followed a rising trend in recent years and is spreading to middle-income households. However, the impact on total consumption in the economy is mitigated by the fact that consumption of low-income households is lower overall than that of the other groups.

The shape of the Lorenz curve indicates that the lowest-income 20% of households account for about 10% of total consumption and these households create virtually no savings (see Chart 4). The inequality is lower for consumption than for income; for household money savings it is stronger. Chart 4 also shows that the upper 50% of households in terms of income generated 80% of money savings, a similar level as in 2004. The most uneven distribution of savings occurred in 2008, when this group of households created almost 95% of savings. Thereafter, the Lorenz curve returned to the shape seen in previous years. This is consistent with the evolution of the Gini coefficient, measuring the rate of relative inequality, which for money savings increased from 0.43 in 2004 to 0.67 in 2008 and then fell back to 0.46 in 2011.

Chart 1 (BOX) Consumption of selected household income groups
Consumption growth has been weak in all selected income groups, and consumption has declined in low-income households 
(annual percentage changes; moving averages; in nominal terms)

Chart 2 (BOX) Net money income of selected household income groups
Income growth has slowed sharply in all selected household income groups, and incomes have fallen in low-income households 
(annual percentage changes; moving averages; in nominal terms)

Chart 3 (BOX) Money savings of selected households income groups
Higher-income households have had a higher ratio of money savings to income than before the financial crisis, whereas for the lowest-income household groups this ratio has been negative 
(percentages of net money income)

Chart 4 (BOX) Lorenz curve 
The money savings distribution is more unequal than the consumption and income distributions 
(percentages on both axes; source: CZSO household budget survey, 2011; CNB calculations)

1 The data are based on the CZSO family budget statistics. The income groups of households are broken down by net annual money income per person.

2 The excessive debt threshold for households is defined as the situation where debt repayment costs exceed 50% of net money income after subtracting essential expenditure (food, housing, energy, etc.).

3 The CZSO survey on living conditions in 2011 reveals that around 73% of low-income households could not afford to pay an unexpected expense of around CZK 9,000, while the figure for middle-income households was 46% and that for high-income households was 13%. Furthermore, the survey revealed that 31% of households in the lowest income decile had great difficulty making ends meet, compared to 7% of middle-income households and 1% of high-income households.