How (Un)wealthy Are the People of Three Seas Countries?

Households in Central & Eastern Europe are still in the process of building financial wealth. It makes these economies vulnerable to adverse shocks, but it also makes the region an attractive investment destination.

Save money and investment concept. Closeup piggy bank and silver coins falling. 3d rendering illustration
Photo: iStock.com / marchmeena29

The average savings rate, which is the relation of savings to disposable income, is significantly lower in Central & Eastern Europe than in other countries of the EU. Between 2016 and 2022, the households in that region saved, on average, only 10.4% of their disposable income, whereas, in the rest of the EU, this saving rate was equal to 15%. Why is it so?

The most straightforward answer to this question is that they earn less and have to spend a higher share of their income on basic needs. In Western European countries, people’s food expenditure equals around 15%-20% of their total consumption, whereas, in Central & Eastern Europe, it amounts to 25-35%. (According to Eurostat data on consumption basket structures).

Household savings in Central Europe

But obviously, the ability to save is not the only decisive factor determining the household savings rates in particular countries. Much depends on other factors, such as the cultural tendencies toward the propensity to save (which is how much you are willing to save regardless of your income), tax and social security policies and other institutional arrangements, or even the development of the financial sector and capital markets.

Therefore, the differences among the countries in household savings rates are substantial even for countries with similar incomes per capita. For example, between 2016 to 2020, Greek households recorded the lowest savings rate in Europe – it was even negative. On average, Greek families saved -1.4% of their disposable income during that time. In essence, they had to draw from their financial assets to cover their current spending (here, the limited savings capacity due to the financial crisis Greece experienced played a role).

On the other hand, Swiss households in this period saved as much as 25% of their incomes. The savings rate also differs among the Three Seas countries. They varied from 0.7% in Bulgaria to 15.1% in Slovenia. There is not a single country in the region where the savings rate exceeded the “western European average.”

Wealth takes time

However, the differences in savings rates are only part of the story. Personal and household decisions on labor or financial markets are determined by how much they hold and how wealthy they are. Obviously, the more you save, the sooner you become wealthy. But it takes time. And ideally, decisions are not based on your future wealth but on your current stock of wealth. You build this stock over your lifetime, and you can also inherit it from your ancestors. And here, the differences between households in CEE and households in Western Europe are even more significant than differences in saving rates.

Net household financial assets – the difference between funds households have on various accounts and the funds they’ve borrowed – for all Three Seas countries are lower than the net financial assets of households of any other EU member state except Greece. The value of net financial assets per capita does not exceed EUR 20,000 for any country in the CEE region, whereas, in numerous countries of the western part of the EU, it exceeds EUR 60,000. Also, the average relation of net financial assets of households to GDPs in those countries is, in most cases, lower than for the western counterparts.

It means the households in CEE are still gaining financial wealth and catching up with their western counterparts. This catching-up process will continue for at least the next couple dozen years, and it can take longer than closing the GDP per-capita gap (which is still there). It is the heritage of the turbulent past and, more recently, communist times. On the one hand, it makes economies and families in the CEE region more vulnerable to any adverse economic shocks. On the other hand, it makes the region’s people exceptionally eager to learn and work hard, which results in higher growth rates and investment attractiveness.

Mateusz Walewski

Chief economist of BGK (Bank Gospodarstwa Krajowego) since 2018. Previously worked among other for PwC and CASE - Center for Social and Economic Research. Participant of numerous research projects and advisory services for the private sector and governments across Central and Eastern Europe. Member of the Team of Strategic Advisors to the Prime Minister of Poland in years 2008-2010. Author of publications and consultancy reports on macroeconomics, labor market and social policy issues. A graduate of the University of Warsaw and the University of Sussex.

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