Indonesian Households Dip Into Savings as Living Costs Outpace Middle-Class Income Growth

JAKARTA, Investortrust.id — Indonesian households are increasingly burning through their cash reserves to maintain daily living standards, driving down personal savings allocations as static incomes struggle to keep pace with basic household expenditures.

According to Bank Indonesia’s Consumer Survey released for June 2026, the decline in savings propensity was most pronounced among middle-income brackets earning between Rp 2.1 million ($132) and Rp 3 million ($188) per month, as well as those earning Rp 4.1 million ($258) to Rp 5 million ($314) per month.

Households earning Rp 2.1 million to Rp 3 million per month set aside just 15.6% of their income for savings in June, while devoting 75.2% directly to immediate consumption. For households earning Rp 4.1 million to Rp 5 million, the savings ratio stood at 16.9% against a 71.8% consumption share, while households earning above Rp 5 million spent 70.9% of their income on consumption.

The squeeze on household balance sheets highlights a broader structural vulnerability across Southeast Asia’s largest consumer market. As inflation and essential living costs absorb a larger share of middle-class earnings, declining savings buffers threaten to erode private consumption—the primary engine of Indonesia's gross domestic product. Furthermore, a persistent drawdown in household deposits risks tightening domestic liquidity across the banking sector, raising questions over long-term credit availability.

The Squeeze on Middle-Class Deposits

Economists attribute the trend to classic household "dissaving"—a coping mechanism where families deliberately reduce savings allocations or tap legacy bank accounts to preserve lifestyle baselines amid weakening real purchasing power.

"This phenomenon aligns directly with the deceleration in commercial bank third-party fund growth, signaling that household capacity to save is coming under direct pressure," Bank Danamon Chief Economist Irman Faiz told Investortrust.id.

The middle class has borne the brunt of the slowdown. Data from the Deposit Insurance Corporation (LPS) showed total commercial bank deposits reached Rp 10,309 trillion ($648.36 billion) in June 2026, marking a 0.2% monthly contraction. High-net-worth accounts held the lion's share of overall bank liquidity, with accounts holding over Rp 5 billion ($314,465) representing 57.95% of total deposit value.

LPS Chairman Anggito Abimanyu acknowledged in a parliamentary appearance on Monday, July 20, 2026, that middle-class savings growth had moderated over three consecutive months. However, speaking at the Presidential Palace complex a week later on Monday, July 27, 2026, Abimanyu minimized concerns over a structural drawdown. "Accounts below Rp 100 million ($6,289) and those above Rp 5 billion are all continuing to grow and move positively," Abimanyu stated on July 27.

Savings Depletion Over Debt Expansion

Despite the drop in savings ratios, economic analysts note that consumers are not yet turning to systemic debt leverage to fund daily needs.

Consumer credit expansion grew at a modest 5.75% year-on-year, significantly lagging investment credit growth of 24.9%. The gap suggests households are prioritizing existing cash cushions and spending selectivity over debt-fueled consumption.

"Risks to financial system stability remain bounded as long as household credit quality stays intact and bank balance sheets remain strong," Faiz observed, emphasizing that real wage recovery remains the critical variable for reversing dissaving trends.

Signs entering the third quarter of 2026, however, point toward a continuing shift. Data from Bank Mandiri’s Office of Chief Economist showed average retail spending growth slowed to 5.8% year-on-year at the start of the third quarter, down from 6.1% in the second quarter and 6.4% in the first quarter. The combination of soft savings buffers and rising consumer leverage indicates that a growing share of ongoing household spending is now reliant on credit.