Often, even if people think about ensuring a comfortable old age, they lack information on how to best save money for it, Radio Prague notes. Therefore, a recent study by STEM/MARK for the publication MF DNES showed that nearly half of the Czech population saves for old age using a bank account.
"First, this information itself is very interesting, since respondents acknowledge in their answers that a bank account is not a suitable tool for saving for retirement. Only 14% of respondents are sure of the opposite. At the same time, when asked how they save for retirement, 48% of respondents said they use a bank account.
If we add that 34% of the country's population uses building savings for the same purpose, this only indicates that Czechs have no idea how to invest their money to ensure a decent old age. 56% of respondents agree that one of the suitable means of investing for old age is supplementary pension insurance. However, when it comes to mutual funds, only 6.9% of the population wants to invest in this way.
This indicates that there is a problem with investing money in Czech society. I don't want to speculate, but it seems to me that this is a kind of reaction to the rapid development of the economy in this area in the 1990s," states František Seidl, an analyst at SMS Financial Consulting (SMS finanční poradenství).
The "wild 90s" left distrust of investments not only in the countries of the former Union. A similar, though perhaps less dramatic, situation exists in the Czech Republic. According to František Seidl, the state has the power to change this. From the materials of the study, it became known that nine out of ten people complain that they do not receive reliable information from the government, and 90% of the population is even sure that they will not have enough money to meet their needs from the amount they receive from the state.
"This means that the majority realizes the importance of this situation. Interestingly, when we asked people where they get information about investment opportunities, more than 50% answered from the internet, and only 25% reported receiving it from financial advisors. So it becomes obvious that the approach of the financial consulting sector to the issue of financial literacy of the population must change.
80% of the population believes that it is necessary to take care of one's own pension. Moreover, it is pleasing that in the age group from 25 to 30 years, as many as 85% hold this opinion. 69% of them answered that they want more information about the possibilities of ensuring a peaceful old age. This means that people want to receive more information about investment opportunities, but they want it to happen in a different way than before. That is, they do not want someone to impose something on them or to manipulate them. Perhaps this is also related to their accumulation of financial resources in accounts. They are simply waiting until they get more information on how to successfully invest their savings," continues František Seidl.
The natural question arises: how can a person invest money properly to ensure a decent old age? According to František Seidl, this question is directly related to the financial literacy of the population. People fear one thing – risk, that someone might steal from them. This is where the negative experience of the 1990s speaks, as well as the fear of instability.
"People are horrified, for example, that equity funds first grow, then experience a period of decline, while they are accustomed to their bank account where money can only grow. So, if someone invests in a mutual fund, they immediately have depressive thoughts that they have lost their savings when the value of units falls. However, if people need to invest over 30 years, there is no other solution than investing in such funds. Because any other saving method means setting aside much larger amounts, and that, as a rule, cannot provide people with a normal standard of living.
Therefore, it is necessary to understand this issue. Then a person can, for example, learn that there is a life-cycle method, which means that in the final years of funds being in pension funds, fluctuations stabilize. This is where there is room for financial advisors to reassure people and explain how it works. Then a person will no longer have a problem deciding to invest."
The study showed that the majority of the Czech community behaves responsibly regarding savings for retirement. At the same time, many realize that the amounts they save under supplementary pension insurance are small. Half of the population saves from 500 to 1000 crowns per month (from 18 to 36 euros). As a rule, people invest money in one place. Some financial advisors, however, recommend investing in several different funds to reduce risk. On the other hand, if you think that a person with an average salary of 20 to 25 thousand crowns (740–925 euros) puts 500 crowns into one fund, a thousand into another, then what is left for living?
So, how to correctly calculate your budget to live well today and at the same time manage to save something for old age?
«In our company, we structure our work with clients in such a way that we first determine what amount a person will need to live on when they retire,» explains František Seidl. «As a rule, people often have no idea how demographic development proceeds. Most people answered that they would need funds for a maximum of 15 years. But that means that, especially the so-called 'Husák's children' generation, born in the 1970s and early 1980s, are 'strong' years, meaning that many people were born then. They are followed by very 'weak' years, which will have to support them. Therefore, nobody knows how things will stand in 30 years when these problems start to manifest. At the same time, the average life expectancy is increasing, and in the end, a retiree will need funds not for 15, but for 20 years – 22 years.»
Another problem that František Seidl considers necessary to draw attention to is that the standard of living continues to rise. Along with this, the cost of services is increasing. Already today we can observe a rise in the cost of services, for example, in healthcare. New, more expensive technologies are emerging, and if a person wants to have a high level of medical care in old age, they must also be prepared to pay a significant part of it themselves, without relying on health insurance.
Therefore, when people think that they will spend less in retirement than they do now, they are often mistaken. Having calculated today that in retirement they will manage with 20,000 crowns (740 euros), a person, according to František Seidl, looks at this through the eyes of today's retiree, who spends most of their time at home, hardly goes anywhere, and generally leads a less active lifestyle. Therefore, he says, a person must first of all clearly imagine how much money they will need to cover all their needs in retirement.