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Financial education 27 Apr 2020

What the lockdown teaches us about savings

Maintaining financial health once the lockdown is over will be important for our savings goals and for having a financial cushion that makes it possible to handle any emergency, thus ensuring peace of mind with respect to financial matters. That’s why it’s a good idea to continue some of the habits that have become widespread during the lockdown, habits that have proven effective for saving money.

The coronavirus crisis has caused a global shift in consumption and savings habits. In the U.S., most U.S. citizens are reducing their expenses and retaining their investments instead of selling them, according to a survey by the financial company Bankrate. This behavior is prevalent across all levels: both in the 53 percent of households with the highest income level (over $80,000 per year) and in the 49 percent of households with lower salaries (less than $30,000 per year).

The consulting firm McKinsey & Company has released a report in which it traces the possible scenarios that could take place in the world’s largest economies as a result of the pandemic. It estimates that consumers would be cutting up to 40 to 50 percent of expenses from the purchase of non-essential goods and services. In every recession, people will cut back on purchases that can easily be postponed (such as cars and appliances), and increase precautionary savings in anticipation of a worsening crisis. What makes the coronavirus pandemic different is that people will also eliminate spending for restaurants, travel, and other services that usually fall but do not drop to zero. ”

New habits

All the savings from a change in habits due to the lockdown can be channeled to make the most of them when life slowly returns to normal. Here are some key ways to do so.

Controlling expenses

Have more savings does not mean having more to spend. Following the lockdown period, it would be a good idea to create a budget to adjust budget lines that have altered and correctly reflect expenses. For example, the budget line for transportation or fuel will probably increase for those who go back to their places of work, but household expenses may go down.  A budget is the best tool to know how much money can be allocated to savings, consumption and paying off debts.

The ‘Mis presupuestos’ (My budgets) feature in BBVA’s mobile banking application provides the bank’s customers a way to improve their household finances and stay ahead of potential unforeseen expenses. This service helps ensure that there will not be an overspend in certain categories where the customer has determined the appropriate threshold or in those areas where consumption habits have changed because of the pandemic.

Setting new savings goals

Life has changed significantly as a result of the global pandemic. Some savings goals may remain unchanged: buying a home, saving for children’s education, or starting to save for retirement, for example. But, if there is one thing the coronavirus crisis has made abundantly clear, it is advisable to have a rainy-day fund as part of our financial goals. This emergency cushion will help us face unexpected financial events such as those we are currently witnessing.

Taking advantage of the benefits of digitization

The lockdown period has led to greater global digitization for consumers, according to a study by the international consulting firm Reply. Consumers who are more familiar with consuming products online have certain advantages when it comes to saving. For example, they can easily compare prices and be aware of the sales and discounts regularly offered by online stores.The flood of enticing offers, however, can also lead them to overconsume. In order to avoid possible temptations, it’s important to assess whether you really need what you are going to purchase, or if it’s just a impulse that is likely to pass.

Furthermore, the same good savings habits that are practiced in the real world can be carried over to online shopping. The same idea of putting your small coins into a special change jar for some future spending whim can be put into practice online with the BBVA app’s ‘Rounding up’ functionality. This feature helps customers save by putting the small change leftover from a purchase into an account of their choice.

The ‘rounding up when shopping rule’ is the configuration that is currently most used by customers who use the set up your account functionality. To date, of the 178,000 instances of active rules in use, 100,000 are the ‘rounding up’ rule.

Consuming in a sustainable manner at home

People who have gotten used to following simple guidelines to save electricity and water are helping both the environment and their wallets. When the situation goes back to normal, if you continue to do things like avoiding the ‘stand-by’ mode in appliances and electronics, using water responsibly, and moderating the temperature in the house, to cite just a few examples, it will have substantial benefits for savings.

Reinforcing financial education

In a crisis situation, financial education is vital to maintaining  healthy finances and taking measures to make them more resilient. The expert María José Roa, member of the OECD/INFE  Research Committee and one of the winners of the BBVA 2019 EduFin Grants, mentions some of them:

  • Having a financial cushion or savings for unexpected expenses
  • Not taking on too much debt
  • Making financial plans 

Financial education will not be the only remedy when families find themselves in a financial bind, but it could play a fundamental role in their financial recovery. Therefore, according to Roa, it will play a part in strengthening financial health, a term that is associated with “the freedom to make financial decisions, the power to handle unexpected expenses, the ability to plan personal finances, and finally, making decisions that make it possible to enjoy life.”

Each customer’s financial health is of fundamental concern to BBVA, and it is out of this concern that Bconomy was conceived. This tool ranks each customer’s financial situation on a score from 0 to 100, factoring in monthly savings, financial freedom, household expenses, mortgage payments, and delayed card payments. With this analysis, ‘BBVA Bconomy’ helps customers with personalized recommendations and tools to help them make better financial decisions depending on their circumstances.

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