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Covid effect: Savers embracing risk?

We stayed home, willingly or unwillingly. We cooked our own meals, cut our own hair, and given that we weren’t stepping out much anyway, bought fewer items that we usually need to show our best faces to the outside world. 

Yes, Covid-19 did leave many unemployed and made huge dents in many other pockets. But it saved more than a few bucks for those who escaped the worst of the financial impact of the dreaded pandemic. The unlikely beneficiaries of these savings were equities and investment funds, as lack of opportunities to spend encouraged people to put more money in high-return assets.

These are the findings of a survey by Allianz Research on the savings behaviors in Germany, France, Italy, Spain, Austria and the U.S. in the first half of 2020 - the ‘Year of Covid’.  

In all the six countries, net acquisitions of financial assets jumped in the first half from the corresponding period of 2019. The increase ranged from 35 percent in Germany to a massive 223 percent in Italy.

What other financial behaviors did the pandemic change? And will the changes last? Or were they flashes in the pan that will disappear as soon as the virus does. Allianz Research provides some insights...

Risk appetite stimulated?

When the global financial crisis of 2008 left the world reeling, central banks stepped in to support economies. Since then, persistent low interest rates, especially in Europe, have been both a boon and a bane, depending on whom you ask. 

For those looking for credit, it’s been a blessing. But savers and investors with low risk appetite have been left in a lurch. Money deposited in banks has been returning close to nothing – in fact, banks have been charging people for parking their funds. Besides, avenues for low-risk investments have been few and far in between.

Have savers finally realized that they need a change in appetite for making their money work for them? In Germany and France - traditionally the more conservative countries when it comes to investments – the trend last year seems to suggest so. German savers increased the portion of their investments into equities and investment funds to 24 percent in the first half of 2020 from 15 percent in the same period a year ago, while the French upped it to 11 percent from 3 percent. The Austrians, who were already equity-friendlier in 2019 with a fifth of their savings going into riskier assets, increased it further to a quarter.

Spanish and Italian households, known to be the more open to taking risks than their other European counterparts, even turned net buyers of equity and investment funds from net sellers.

The financial capital of the world – America – has a similar story to tell. According to the Conference Board’s quarterly U.S. Consumer Dynamics Report, 20 percent of consumers surveyed in the fourth quarter of 2020 invested in stocks or mutual funds, up from 15 percent in the second quarter. 

Flash in the pan?

The trend of 2020 begs the question: is this trend here to stay? In the backdrop of the financial mayhem caused by the pandemic, a rise in interest rates in the near future can be more or less ruled out as governments seek to prop their economies.

Initial responses from the Allianz Research survey indicate that this trend is unlikely to persist. Asked if they would like to acquire less, the same, or more equities when the pandemic is behind us, respondents across the seven countries surveyed said they intended to invest in equities as much as before the pandemic.

Americans, however, showed a greater interest than the others in the stock markets, with more than a quarter of the respondents hinting at increased exposure to equities. The ‘gamification’ of stock trading thanks to fintech companies, and the rise in the number of amateur traders could be making market trading a mainstream affair. That said, a third of the American respondents said they planned to cut their equity investments.

What’s surprising is that as much as 59 percent of the respondents believe that low interest rates are here to stay for way longer than previously expected. This, however, has done little to whet their risk appetite. 

Gender and age differences

Are men more inclined to take financial risks than women? Although the stereotype seems to hold in the survey, it’s not by a wide margin. Fourteen percent of women and 17 percent of men said they would invest more in equities after the pandemic.

What about the differences between generations? Were the younger populations keen on taking riskier bets? Apparently not. The attitudes on investing in equities persisted across age groups.

Even though the younger generations – 20 percent of millennials and 23 percent of Generation Z – were open to investing more in equities versus the average of 15 percent for the entire sample, as much as 34 percent of millennials and 37 percent of Generation Z actually planned to decrease their equities investments going forward. That’s a strong statement against the so-called recklessness of youth. 

Interest in equities by country and gender

allianz research savings behavior
Copyright: Allianz Research

What about insurance?

Covid-19 exposed the protection gaps in our lives and livelihoods. As such, the pandemic taught us harsh lessons on the importance of securing our future. Or did it?

Even after the Covid-19 carnage, most respondents of the survey had surprisingly low interest in increasing their insurance coverage for potential adversities. While respondents from the countries that experienced the worst of the virus showed a greater interest in raising their coverage, a significant number of people from a couple of badly-hit countries were actually planning to lower their insurance spend. The U.S. led the ‘increase’ brigade with 18 percent, while worst-affected European countries – Spain, France and Italy – followed with 16 percent, 15 percent and 11 percent, respectively.

The Austrians and the Germans, with 7 percent and 8 percent were the least interested in increasing coverage. Is it because they are already more insured than other Europeans? Or does it have to do with the relatively lower impact of Covid-19 on these countries?

In Italy and France, two countries of the worst-affected European countries, more than a fifth of the respondents said they would like to cut their spend on insurance.

“Covid-19 revealed the fragility of our modern, hyper-connected lives and disclosed glaring protection gaps. In this context, risk awareness and demand for risk cover would be expected to rise. However, our survey pours some cold water on such hopes: Most respondents would like to keep the same insurance coverage and investments that they had before. Nostalgia for our pre-pandemic existence should not stop us from taking this as a learning opportunity and try to remedy some of the errors of the past,” says Allianz economist Patricia Pelayo Romero, one of the authors of the study. 

Interest in risk coverage after Covid-19 by country and age group

allianz research savings behavior
Copyright: Allianz Research

The silver lining is that Covid-19 seems to have left less of an impact on the people in the countries surveyed than expected. But when the reality of rock-bottom rates hits home, the behaviors could change. 

Or are we really more resistant to change than we originally thought?

The Allianz Group is one of the world's leading insurers and asset managers with more than 100 million* private and corporate customers in more than 70 countries. Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property, life and health insurance to assistance services to credit insurance and global business insurance. Allianz is one of the world’s largest investors, managing around 790 billion euros on behalf of its insurance customers. Furthermore, our asset managers PIMCO and Allianz Global Investors manage 1.7 trillion euros of third-party assets. Thanks to our systematic integration of ecological and social criteria in our business processes and investment decisions, we are amongst the leaders in the insurance industry in the Dow Jones Sustainability Index. In 2020, over 150,000 employees achieved total revenues of 140 billion euros and an operating profit of 10.8 billion euros for the group.

These assessments are, as always, subject to the disclaimer provided below.

*Including non-consolidated entities with Allianz customers.

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Lorenz Weimann
Allianz SE
As with all content published on this site, these statements are subject to our cautionary note regarding forward-looking statements:

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