ECB survey reveals pandemic impact on household finance

The ECB this week released the latest version of its Household Finance and Consumption Survey (HFCS) report, providing insight into the financial state of households in Cyprus and the Eurozone, particularly in terms of the impact caused by the Covid-19 pandemic.

The survey, conducted in 2021, collected data from over 80,000 households across Eurozone countries, including Cyprus.

The report indicates that the Cypriot economy experienced significant fluctuations due to the pandemic, leading to varied impacts on household incomes, assets, and liabilities.

Despite the disruptions caused by the pandemic, the survey highlighted that most households in Cyprus reported that their incomes remained stable compared to 2019.

However, approximately two-thirds of households that experienced income losses managed to offset them through cost-cutting measures, such as reducing spending on non-durable consumer goods and services.

Furthermore, households in Cyprus, along with several other countries, deferred loan and rent payments as an essential adjustment during the crisis.

Regarding financial wealth, the survey indicated that a significant proportion of households in Cyprus witnessed a change in their financial assets.

While some households experienced a decline, an equal number reported an increase in their financial wealth.

The report also sheds light on differences in asset holdings based on household characteristics. For example, single-member households held fewer assets compared to couples or households with children, and those with a reference person below 35 years of age had notably lower total asset holdings.

In addition, households with a reference person with higher education tended to possess more assets than those with basic education.

Regarding debt, the survey showed that approximately 42.9 per cent of households in the euro area, including Cyprus, were indebted in 2021, with mortgage and non-mortgage debt participation rates remaining relatively stable.

The median values of mortgage and non-mortgage debts showed modest changes compared to the previous survey.

Moreover, the report also showed that between 2017 and 2021, household net wealth across the EU experienced notable growth, with a 12.4 per cent increase for the median and a 13.1 per cent increase for the mean, reaching €123,500 and €292,100, respectively.

According to the report, this rebound marked a significant improvement compared to the low levels observed since 2010.

The report explained that the growth in net wealth was driven by increased asset values, including housing, shares, and business wealth, with limited growth in debt.

When considering household sub-groups, diversity in net wealth was evident both in the amount and the trend over time.

Larger households tended to have higher net wealth due to more income earners. Net wealth showed a hump-shaped pattern with age, peaking for the 55-64 age range.

The increase in net wealth was particularly strong for young households under 34 and those aged over 74.

What is more, net wealth also correlated with education levels, rising significantly for households with secondary education but showing little growth for households with only basic education.

Notably, homeownership was associated with higher net wealth, with renters having the lowest, and outright homeowners having the highest net wealth.

Regarding work status, net wealth was lowest for those not working and not retired, increased for employees and retirees, and was highest among the self-employed.

The increases in median and mean net wealth were most notable for households in the bottom two quintiles of gross income, suggesting a reduction in inequality in the lower half of the distribution, while inequality increased in the upper half. Overall measures of inequality provided mixed indications.