This analysis was carried out in the context in which a significant part of the population faces difficulties in saving and understanding fundamental money-related concepts due to low income and a lack of financial education.
Between 2000 and 2020, the Romanians’ disposable income per capita increased by 10% annually, which is the highest growth in Europe during this period. This increase allowed Romania to get close to more advanced Central European countries, reducing the gap at the level of disposable income per capita to 15% in 2020 from 60% in 2000.
Still, Romania has one of the lowest levels of personal financial wealth compared to other Central and Western European countries, at 36% of GDP—almost half the Central European average, according to McKinsey&Company. The average value of the financial assets per capita in Romania is around $5,000, as compared to $12,000 in Hungary. Personal financial wealth is based on personal financial assets, including cash, current-account deposits, non-current-account deposits, securities and derivatives, mutual funds, life insurance, and Pillar II and III private pensions.
“The net wealth of the Romanian population has increased more than eightfold over the past two decades, according to Romania’s cenral bank. Thus, Romanian citizens have low levels of savings, few financial assets, and a significant part of the accumulated wealth is locked into real estate. Some of the reasons why Romanians’ savings are still low are their low income – at least for a large part of the population, and a lack of financial education and, consequently, of long-term planning. Therefore, financial institutions, the Romanian State and consumers must join forces in finding ways to enhance financial education, provide products or services that meet consumers’ needs and ultimately build a culture of financial responsibility and awareness to boost personal and collective wealth.This is a clear case where individual interests are aligned with the collective ones”, said Alexandru Filip, Managing Partner McKinsey&Company Bucharest. Romanians still prefer cash and deposits.
When saving, Romanians prefer to keep their money mainly in cash and deposits and do not use sophisticated investment products such as mutual funds, securities and derivatives. Approximately 70% of personal financial assets are held in cash and deposits, compared to 59% in Central Europe and 40% in Western Europe.
Almost 63% of Romanians say they manage to save occasionally or monthly, based on a survey conducted by McKinsey&Company earlier this year. The survey measured Romanians’ attitudes toward money, savings and financial planning and targeted the urban population with various levels of education, aged between 18 and 65 years old. People who save every month, but not a fixed amount (roughly 1/3 of the respondents) tend to live in mid-sized cities and have higher education levels. In terms of social cohesion, only a quarter of the less educated people manages to save. The younger respondents are equally challenged to start financial investments. Almost one-third of people aged 18 to 24 surveyed are still financially dependent.
Also, 90% of respondents expect their pensions will be insufficient to maintain their preretirement lifestyle.
The survey indicates that Romanians generally lack faith in both public and private pension systems. Just one in five Romanians trusts the public pension system, and only one in four trusts the private pension system. Additionally,~80% of respondents could not estimate the value of the pension they will receive from the state, and 90% expect that their pension will be insufficient to maintain their lifestyle post-retirement. Surprisingly, despite the latter figure, only 28% of Romanians declared that they plan their retirement proactively.
The pandemic has globally increased awareness among consumers of the importance of saving, including Romania. But it seems difficult to maintain this trend as spending restrictions have eased and high inflation has started to dent purchasing power.
Only 1/4 of Romanians kept their pandemic-induced saving behaviors
At present, only one in four Romanians said they have managed to keep up with their pandemic-induced saving behaviors, the survey shows. This situation is driven by the lack of funds, financial education and support to help them save. Just 15% of respondents said they had attended financial education programs, and only under 30% said their families taught them how to invest.
This lack of trust in financial advice and the low level of financial education also affect how Romanians choose to invest. The survey found that respondents prefer either low-risk, low-return assets such as foreign currency (around 32% of the respondents), term deposits (28% of the respondents), real estate (24% of the respondents), or speculative investments such as cryptocurrencies (e.g., Bitcoin, Ethereum etc.).
At the same time, 75% of respondents claim to manage their investments by themselves. Only one in five respondents believe that banks offer reliable financial advice, and a similar percentage check with their bank when making a money-related decision. Family and friends are considered a more credible source of information when it comes to money management than financial institutions or experts.
Around two-thirds of the respondents would like the Romanian State to get more involved in helping the general population to save or invest by offering incentives. At the same time, 60% felt that banks or insurers should also do more to help the population to save up by offering advice and providing products that better suit customers’ needs. Last but not least, Romanians also believe that families and the school system should play a more significant role in providing financial education to children.