Although most Latvian residents admit being able to cover monthly costs without difficulties. 33% of residents experience difficulties, according to a study performed by Swedbank Institute of Finances.
Three out of ten households admit experiencing situations in the past year when their monthly income was insufficient to cover regular costs. Nearly every tenth family faces such a situation every other month or more often, which points to significant gap between income and expenses.
A similar situation is noted in Lithuania and Estonia – 41% and 39% of residents in those countries had experienced situations when they did not have enough money to cover regular costs last year.
«Although, according to information from the Central Statistical Bureau of Latvia, the number of households that are able to cover monthly costs without problems had increased last year, we see that the number of residents for whom covering monthly expenses is a challenge remains rather high. Families with low income and lone parents are the ones that are financially protected the least,» notes Swedbank expert Evija Kropa.
Residents choose to pay late or borrow money
In situations when monthly income is not enough to cover all expenses, the majority of households review their priorities and start living more modestly, refusing unnecessary expenses (59%). Other approaches include paying for everything at a later date, when the family’s budget receives more money (42%). 32% of respondents mentioned borrowing money from relatives and friends.
«What is interesting is that students and residents with medium income (350 to 500 euros a month) often decide to save money at the expense of other costs (85% of students and 75% of medium wage recipients). Businessmen and self-employed people most often decide to put off payments. The same applies to residents with income above 700 euros a month (52%),» experts say.
Residents more rarely consider getting additional income to compensate the lack of money – such an option is considered by every fourth respondent. Every fifth respondent usually decides to use previously made savings to cover monthly costs.
When asked for how long they can make ends meet with only their savings, 49% of respondents said – no longer than one month. Men and older people say they feel secure, adding that their savings can help them get through up to five months. Businessmen say in such situations they would be able to survive for up to seven months without significantly reducing their expenses.
Although according to statistical data from the Bank of Latvia the volume of deposits in commercial banks for Latvian households is on a rise and has reached a record high volume (5.9 billion), it should be said that most of those deposits are concentrated in the wealthy residents segment. Latvian households remain financially vulnerable and do not feel secure when it comes to making plans for the future, the bank’s representatives say.
«We have noticed a tendency when the lack of savings puts residents in a position of having to turn to lenders. Often income is too low to afford making savings. Nevertheless, it should be said that if a person cannot afford to make savings, they cannot afford to borrow money as well. It is cheaper to fill holes in the family budget using savings,» Kropa comments.
She notes that it is important to create a safety pillow, so that there is an emergency reserve to rely on in emergencies.
Lithuanians more often borrow money, Estonians – spend savings
In Lithuania and Estonia there are also residents who are not sufficiently protected against different financial risks – 39% residents in Lithuania and 44% in Estonia would be able to make it through no more than one month using their savings.
Upon ending up in financial difficulties, Lithuanians and Estonians, like Latvians, would cut expenses (55% of Lithuanians and 49% of Estonians). But this is where opinions start becoming different – while Latvians often decide to put off payments (42%), Lithuanians would borrow money from relatives and friends (39%). Estonians would use their savings (37%).