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A growing number of Finns are living without a necessary financial safety net, according to a recent survey by LähiTapiola. The survey, part of the “Arjen katsaus” report, reveals that 11% of respondents would face difficulties if confronted with an unexpected €100 expense. This figure represents a three-percentage-point increase from January 2023.
Hannu Nummiaro, an economist at LähiTapiola, highlights the vulnerability of many Finns, especially among the 25-50 age group, where more than one in ten have a credit default.
“It’s no surprise that the same proportion struggles with even small financial surprises. While average Finns have managed rising costs well, cuts to social security and increasing unemployment are taking a toll on some,” Nummiaro explained.
Despite the financial strain faced by some, the survey also indicates an overall improvement in financial resilience. The average Finn reported being able to handle an unexpected expense of up to €1,630 without significant issues, an 11% increase from €1,470 in January 2023.
Nummiaro attributes this improvement to a recovery in purchasing power, making it easier for people to save. However, he notes that saving opportunities vary greatly depending on individual circumstances. “It’s crucial to build up savings when possible to cushion against financial shocks,” he advises.
The survey also found that the number of respondents who could manage a €5,000 unexpected expense has grown significantly, from 13% in January 2023 to 18% in the latest survey. However, households earning under €20,000 annually reported being able to handle an average surprise expense of €780, up from €630 in January 2023.
Nummiaro recommends that individuals aim to save at least a couple of months’ net salary as a financial buffer. For instance, with the median net monthly income in Finland estimated at €2,470, a savings buffer of around €4,900 would be advisable.
To build this buffer, Nummiaro suggests a three-step approach: first, save for small, one-time expenses; then, create a more substantial fund to cover a few months of living expenses in case of unemployment or disability; and finally, set aside money for retirement.
“For everyday surprises, such as a broken washing machine, you might want to keep between €1,000 and €2,000 set aside,” Nummiaro says. He suggests keeping these funds in a separate savings account or even in a bond fund to make it less tempting to use them prematurely.
The traditional emergency fund, the second tier of Nummiaro’s approach, should cover two to three months of net income. “This fund might sit untouched for years, so it’s important to maintain its purchasing power. However, it could be needed as soon as next week, so it’s wise to keep the risk level of investments moderate,” he advises.
Once both the short-term and medium-term funds are established, Nummiaro recommends focusing on saving for retirement. He points out that while those born in the 1940s saw an average real return of 6.6% on their pension contributions, younger generations are facing much lower returns, around 1.8%. “Saving for retirement, if at all possible, benefits not only the individual but also society as a whole,” Nummiaro concludes.
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Source: www.helsinkitimes.fi
