Covid-19 has undoubtedly changed many aspects of our lives, some of which we hope to return to as soon as the clouds of the pandemic lift.
However, there are some areas where our habits may have changed permanently and are unlikely to fully revert to old habits.
An example is our relationship with our money and how we spend it.
Everything from online shopping to food deliveries and an accelerating decline in the use of cash has been a feature of the pandemic.
And there have been other indirect effects of Covid that impact our relationship with our hard-earned euro.
For example, things are getting more expensive due to inflation, and we have had to become more patient as consumers, as supply chain difficulties have forced us to wait longer for products to arrive at our doorsteps. .
Vladimir Lenin’s quote “There are decades when nothing happens; and there are weeks when decades happen” will likely be appropriate as we consider life beyond Covid.
As we retreated to the sanctity of our homes in March 2020, we had to adapt to new ways of doing things and rather than going out for our services, they came to us.
But some couldn’t and our expenses just went down.
“There has been a sharp contraction in aggregate consumption from the start of March 2020 and in this context there has also been a substantial reallocation of spending from long-established prior spending patterns,” the Bank concluded. central in a report on the impact of Covid-19. 19 consumer spending at the end of 2020.
Total spending in the retail sector fell from 47% of card spending in 2019 to 55% a year later, the study concluded, with the reallocation largely driven by changes in grocery spending – supermarkets being one of the few outlets we could visit in lockdown.
On the other hand, as has been well documented, hospitality and event venues have suffered.
According to figures from the Central Statistics Office, household spending fell by 10 billion euros in 2020, with the biggest impact on spending in restaurants and hotels, which fell by 6.5 billion euros. euros.
Is the savings boom giving way to the spending boom?
Much of the money that was not spent ended up in deposit accounts, with the savings rate of many Irish consumers – who already had a penchant for depositing money – skyrocketing.
According to the latest data from the Central Bank, the level of deposits in Ireland reached a record high of 136 billion euros at the end of October.
This has increased by 24 billion euros since the pandemic hit.
But there are signs that the purse strings have loosened a bit throughout 2021 as consumers slowly begin to part with their Covid savings.
Central Bank figures for November showed household deposits fell by 1.4 billion euros in the month, marking the first time since the summer that withdrawals had exceeded deposits.
A Bank of Ireland savings and investment barometer in the run-up to Christmas recorded the biggest quarterly decline in attitudes towards savings among households, indicating that our ways of saving were regressing somewhat.
Clicks and mortar
As retail outlets reopened throughout 2021, consumers returned in droves to the high street and malls, contributing to a record tax grab.
VAT sales tax receipts in Treasury returns for 2021 indicated a healthy rebound in consumption last year with a total of 15.4 billion euros, up nearly a quarter from 2020.
But the habit of spending online, which many first picked up during the pandemic, has shown no signs of dramatically slowing.
According to a CSO study of digital consumer behavior, about four in five consumers bought goods or services online last year, with people aged 16 to 44 being the most likely to do so.
A consumer survey conducted by KPMG earlier in the year found that more than two-thirds said they shopped more online than before the pandemic.
However, as more and more retailers follow the trend of making their products and services available online, much of the spending that passes through online channels still ends up leaving the country.
An analysis by payment app Revolut of Black Friday spending in December found that while nearly three-quarters of all Black Friday spending was kept in-state, with the majority of spending done in person, the bulk online spending has been made. on foreign websites – about two-thirds, in fact.
This is an increase from 2020, when 39% of online purchases by Revolut Irish customers were made on domestic websites and 61% were ordered from overseas sites.
So maybe it’s a good thing that some old habits seem to persist for the time being.
Despite the emergence of the highly transmissible omicron variant of Covid, consumers continued to shop in-store as Christmas approached, with the last-minute rush to stores persisting as a feature of the retail landscape, despite public health warnings and advice buy early to avoid disappointment over supply chain difficulties.
According to December spending data from the Bank of Ireland, around two-thirds of people prefer to do their Christmas shopping in person rather than online.
And spending data from Revolut indicated increased spending in December at outlets where last-minute purchases are typically made, including jewelers, department stores and toy stores.
Cash is no longer king?
No matter where people spent their money, chances are they didn’t make their purchases with cash.
After raising the threshold at which consumers could “tap” for purchases from €30 to €50 at the start of the pandemic, contactless payments inevitably exploded.
And the preference for cards over cash appears to have continued with the latest data from the Federation for Banking and Payments showing that contactless payments hit a new high between July and September with around 234 million payments from a value of nearly 3.8 billion euros made.
This represented an increase of almost 100 million taps compared to the last quarter of 2019 before the pandemic hit and, in monetary terms, this represented an increase of more than 2 billion euros.
This is the highest level recorded since the BPFI began collecting the data in 2016.
And the change is also being encouraged by banks and retailers, with the former generally charging more for ATM withdrawals than for tapping and the latter, in certain circumstances, choosing not to accept cash anymore.
It looks like the end of the road could be near for silver, but the European Central Bank certainly isn’t giving up on it just yet with plans in place to completely redesign the euro in the coming years.
Patience needed as costs soar
One of the indirect effects of the pandemic on our spending habits has been the recent decline in the purchasing power of our euro.
Consumer price inflation – something that was largely absent for much of the past decade – has returned with some enthusiasm as economies rebound from lockdown.
Much if largely confined to the energy sector with transportation and utility costs rising substantially, but this is having a ripple effect on other categories, some of which have yet to materialize. .
Food producers and processors, for example, appear to be absorbing significant cost increases which, it is expected, will eventually have to be passed on to the end consumer at some point.
So far, consumer price inflation in the food and beverage sector has remained below 1%, compared to more than 5% in the broader basket of consumer goods.
Some of the cost increases we see in areas such as construction are due to delays in getting materials to their final destination – supply chain disruption is the phrase we’re all familiar with – and a shortage of materials translates into higher prices.
The European Central Bank’s mantra is to be patient and it will pass, but guess how long it will take and will they be forced to act in the meantime, which means possible interest rate hikes. interest that will impact most borrowers?
Getting back to normal will take time, but the “new normal” will likely be very different from what happened before.