Ticos Save More Despite Inflation, Low Interest Rates
by Rod Hughes
Costa Rican colon bank deposits soared more than 15% during a year compared with 2007, despite a low inflation rate and double digit inflation, even adjusted for inflation, a Central Bank reports shows. Interest rates had dropped from 8% to 4% while last year’s inflation was 11.4%.
Only dollar savings dropped, by 3%, reflecting the uncertainty about that currency worldwide. Indeed, analysts said that part of the colon deposit boost came from sophisticated investors switching dollars into colons in anticipation of another hike in colon values against the dollar, such as the 3% rise recently. Another factor accounting for the increase in checking accounts, time deposits and such is that many workers use savings accounts to pay normal living expenses,
Although not mentioned by the report, low unemployment may also contribute to to rise in banking of colons, due to higher salaries as employers bid to steal or keep workers in certain key skills and professions. Whatever the reason, colon savings rose to 3 billion last month, impressive even when one calculates that a dollar is about 500 colons. This represents an increase of 671,905 millions over last year.
This tendency to save contrasts with the Tico tradition of a “fiesta mentality” where spare cash went to pay for special treats, gadgets and entertainment. This might be illustrated by a maid this writer had, briefly, during the 1970s in Nicoya, Guanacaste province. She signed on to her job, it turned out, only to gain extra cash to pay for entertainment during the local civic celebrations. She took the job a month before and quit, without notice, the day before the festivities began.
During the administration of President Daniel Oduber (1974-78), a Central Bank official mourned that banks were limited in lending by the fact that Ticos saved less than their North American and European counterparts. Allied with this was a suspicion of banks that the rural oldsters had, preferring to bury their savings in sealed packets on their farms. But universal education and inflation have shown Costa Ricans the folly of earning no interest at all.