Since the outbreak of the pandemic, deposits of households and businesses with banks have increased by more than €200 billion.
This increase reflects both the effect of government restrictions to reduce the spread of the infections, and the strong uncertainty on economic prospects experienced up to nowadays, with the well-known events that are perturbating the markets and economies; these are all factors that have favoured precautionary saving.
The good propensity for savings by Italian is a well-known feature, with the gross savings rate, expressed as a function of disposable income, that rose around 18% in the last two years. However, it should be noted as not always these savings are properly managed.
Based on the last ABI report, the direct collection from Italian banks (deposits and bonds) surpassed €2.000 billion, while households’ savings, managed by investment funds and related parties, rose to €1.300 billion in Q1 2022.
Italians’ savings have a huge potential based on these last updates, even more than NRRP’s funds recognized to Italy. But Italians have long had a low propensity for financial planning, an element that, associated with the limited knowledge of economic and financial notions, often leads individual to be reluctant in investing their savings in financial activities rather than just real estate assets, hence, to sustain the development of Italian companies.
The abovementioned features explain why, notwithstanding the high households’ savings, such financial resources are not optimally channelled towards the public and private markets.
However, during the last year the participation in financial markets grew, with the share of investors estimated at 34%, up from 32% in 2020 and 30% in the previous year.
The most widespread assets are certificates of deposit and postal savings bonds (43%), followed by Italian government bonds (25%) and mutual funds.
The diffusion of the different types of financial products varies significantly with the financial knowledge of the individuals. For example, high knowledgeable decision-makers are more likely to own mutual funds and listed shares.
Compared to the European average, Italian households invest less of their financial wealth in pension funds (3% against 10%), while allocating a greater share in mutual funds and equity (15% against 10% and 21% against 18%, respectively). However, only a small part of the investment funds finance resident enterprises: national shares and bonds represent 5% of their total assets, compared to 34% in France and 14% in Germany.
Among direct investments in equity shares, those involving listed securities are 2.4% of financial investments, half of euro area average. Instead, participations concentrated in small and unlisted companies, are significant.
This portfolio composition is largely a reflection of the structure of the Italian productive system, characterised by numerous small companies in which ownership often coincides with management, as well as the limited recourse to IPOs.
Gross saving rate and gross investment rate of households in the euro area – source: CONSOB
Investments and sources of financing in the major euro area countries (per capita values in euro; cumulative figures over four quarters) – Source: CONSOB
Today, the total savings could determine a decisive change of pace in Italy’s development policies, which requires high intangible investment -education, research, public institution, and social quality- as tangible, to recover the infrastructure gap relative to other European countries (roads, railways, airports, etc.), and an extensive and effective digitisation.
Reaching these ideals is neither impossible nor easily applicable as it entails a paradigm change in how public and private finance manage households’ savings.
On the public hand, authorities should move from a process logic, which is necessary and at the same time sheds great administrative burden on every aspect of the country development, to a performance logic, to be measured based on economic but also social and environmental achievements, so that the public intervention could actively participate with an impact investing approach in the society.
On the private hand, institutional investors and financial intermediaries should correctly advise privates on the opportunity that both liquid and illiquid financial instruments unlock, considering the financial illiteracy that could impede the comprehension of their full potential.
Nowadays plenty of management companies have undertaken initiatives on financial products defined as alternatives, that are alsoavailable on the retail market, to allow even small saver to invest in instruments related to the real economy.
With lower entry ticket to these alternative closed funds for non-professional investors, and the government enactment of fiscal benefits for privates holding this participation, both with respect capital gains and in case of losses, the evolution of this asset class should be closely monitored.
Savers do express a need for a cautious allocation of their capital in instruments that are clear in their risk-premium trade-off, and moreover, that could offer an anti-inflation shield different from the primary function of real estate investments. This savings allocation should consider investments that have the potential to expand the capacity of the economy and the productive system of the country. Indeed, what should happen is a shift from unproductive and traditional investments to productive ones, where the individual return is measurable together with the expected social return of this capital re-location.
The CONSOB is currently working on a proposal to provide a balanced composition of investments between real estate assets and financial securities, entrusting profitability to the development of the real economy. The technical solutions can differ, and the main task of the policy would be to create the most appropriate legal structure and a protective savings mechanism that meets the constitutional requirement. A similar attempt has been taken at European level with the European Long-term Investment Fund (“ELTIF”) and the Individual Savings Plans (“PIR”) in Italy.
Together, Italian institutional and retail investors have enough economic and social capital to evolve the country towards global standards in competitiveness and attractiveness for investors and businesses.
Sources: Banca d’Italia, ABI, Consob, MilanoFinanza, Ipsoa.it
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.
