An IPE Report


According to the National Household Survey (ENAHO), household income in Peru decreased by more than 30% between 2019 and 2020. This situation had considerable effect on the saving capacity of Peruvians. While in 2019 an average family saved S/636 per month (21% of income), in 2020 this amount was reduced to only S/104 (5% of income).


Savings depletion in poor households


The reduction in household savings capacity occurred mainly in urban areas, where the savings rate fell from 20.5% of family income in 2019 to only 2.4% in 2020. In contrast, in rural areas, it fell from 28.4% to 23.2%. In general, the most affected area was Metropolitan Lima, where savings fell from 20.7% in 2019 to 0.4% in 2020. This reduction is consistent with the sharp drop in urban employment (-16.4%), well above that observed in rural areas (-1.1%).


Likewise, when ordering the country’s households into income quintiles – five groups of equal size that each represent 20% of households – it is estimated that those that are located in the first three quintiles had a monetary expenditure greater than the income received in 2020.


For example, households in the first quintile – the poorest 20% – spent almost double their income during 2020, while in 2019 this difference was only 6%. In the case of households in the second quintile, they went from saving 5% of their income in 2019 to spending 33% more than their income in the last year. The increase in spending led to households in this quintile losing more than twice the level of savings they had accumulated in the previous five years. On the contrary, the savings of the richest 20% of households was the least affected, reducing from 32% to 26%. With this, since 2015, it is estimated that the households with the highest incomes have saved, on average, just over 30% of their income each year.


Government support


The drop in savings could have been even greater without the transfers granted by the State during the pandemic. Extraordinary subsidies such as the Universal Bond, the Independent Bond and the Rural Bonus covered, on average, 3.8% of household expenses in 2020. In addition, transfers from social programs like Juntos, Pensión 65 and Beca 18 contributed 2 % of expenses.


This support was of greater importance for lower-income households. In the first income quintile, extraordinary bonds represented 6.2% of household spending, while transfers from social programs were 3.8% of spending. The weight of subsidies as a percentage of spending decreases as family income increases.


Greater vulnerability


The estimated figures suggest a high financial vulnerability for Peruvian households, which, according to BBVA Research, can be defined as the ability to withstand financial shocks depending solely on their own resources, without resorting to credit or changing homes. The 2019 Financial Capabilities Survey conducted by the Superintendency of Banking, Insurance and AFP (SBS) shows that, before the pandemic, about 60% of Peruvian households mentioned not having sufficient resources to survive for more than three months if they lost their main source of income.


Due to the loss of savings mentioned above, the lower-income population would be more financially unprotected in the face of an eventual third wave than it was before 2020. Faced with this situation, the next government would need to take additional measures to support the most vulnerable households. But solving this problem exclusively via bonds would be expensive. For example, last year, the total of households in the poorest quintile spent S/9.7 billion above their income. Alleviating this overspending with direct subsidies would require a cost equivalent to 70% of the public budget of the social protection sector in 2020.


In this regard, Miguel Jaramillo, principal investigator at GRADE, mentions that other complementary measures could be taken to the delivery of transfers. For example, the government could strengthen food security and health programs for the poorest households, with the goal of maintaining basic consumption standards. Finally, according to Jaramillo, although in the short term the labor market can be boosted with temporary employment programs oriented towards small public works projects, in the medium term the most important thing is the promotion of private investment to generate jobs with sustainable and productive work.


The Peruvian Institute of Economics (IPE) is a private non-profit institution whose purpose is to promote the balanced and sustained development of Peru through the improvement of the market economy.