How the middle classes cope. The impact of the financial crisis on British households
above average income
by Caroline Andow, Stephan Köppe, Traute Meyer 1
correspondence:
Caroline Andow, University of Southampton, [email protected]
Stephan Köppe, University of Edinburgh, [email protected]
Paper prepared for the SPA 2011 Conference ‘Bigger Societies, Smaller Governments?’,
4th-6th July 2011
*** First Draft: Please do not cite without permission ***
Abstract
The crisis of the banking system in autumn 2008 had economic implications on a global level. This pervasive
event had an impact on the whole of the UK population, but little is known about how households reacted to the
crisis. This paper presents some preliminary qualitative findings of a wider study. We conducted 61 joint
interviews with couples earning above average incomes in England and Scotland.
Our research found that most households were largely unaffected by the crisis, however a significant group did
experience a negative impact. Focussing on these two groups, we explore how couples affected in similar ways
vary in their reactions. We illuminate key factors that appear to determine behavioural responses,
demonstrating the complexity of the relationships between how couples with above average incomes
experienced and reacted to the financial crisis.
1 Introduction
The crisis of the banking system in the autumn 2008 shook societies around the world.
Economic prosperity declined, unemployment rates rose, political leaders lost parliamentary
confidence in Greece and Portugal because public debt reached unprecedented levels. The
media discussed how people lost faith in financial markets and institutions such as banks and
governments. However, apart from surveys and administrative data, we know little about how
the crisis affected individual households. Using data collected as part of an ESRC funded
project on middle class risk management strategies, in this paper we explore how the
financial crisis affected British households with above average income and their planning for
contingencies and investing in insurance against social risks. There are many reasons to
assume that this pervasive event in British society had an impact:
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1. Loss of confidence in banking system
In 2007 many account holders were shocked when they saw their savings threatened by the
possible collapse of banks such as Northern Rock and the Icelandic banking system, followed
later by the crisis of the Royal Bank of Scotland and other retail banks. This initial shock was
followed by prolonged insecurity as the banking system was struggling to gain stability. This
insecurity had an impact on all households.
2. Poor performance of investments
In British liberal capitalism many individuals’ assets are tied to market performance (stocks
and shares, savings, property, endowments etc.). Pension funds have performed badly during
the crisis and though members of pension funds contributed, their pension assets decreased.
Savers saw their financial wealth shrink, although average household savings were protected
as the government guaranteed the security of the first £50,000 in savings if a bank went
bankrupt. As interest rates were reduced to levels unprecedented in post-war history, savings
accounts performed below inflation. Thus, the relative wealth of savers declined. Moreover,
property values decreased and access to mortgages became tight. On the other hand, low
interest rates also meant lower rates for those on flexible mortgages. Overall many
households were affected by these changes.
3. Insecurity of Employment
The banking crisis made it harder for companies to access credit, a situation particularly
difficult for small and medium-sized businesses, leading to slower growth and bankruptcies.
In addition, the public sector has been under pressure to cut spending and was therefore less
inclined to appoint new staff, while the financial sector shed labour. Thus, unemployment
increased as a result of the crisis, particularly for the young. In addition to the threat of
unemployment some employers reduced the scope of occupational protection for existing
employees, for example by introducing less generous redundancy packages, freezing wages,
cutting bonuses, suspending retention payments and retrenching pension schemes.
4. State retrenchment
After the banking bailout in the autumn of 2008 it became clear that British taxpayers would
have to finance this rescue of the financial system, and that the operation would cost an
excessive amount of money and last for many years. It also became clear that deep cuts in
public spending are likely, once the immediate threat to the banking system was averted.
Even though it was not clear what this would mean in practice, everyone listening to the
public debates would have known that public services, benefits and transfers would be scaled
back in the future, affecting everyone in one way or another (NHS, schools, public/social
services).
5. Higher taxes resulting in lower disposable income
In addition to the retrenchment of public services, citizens had to pay higher taxes, reducing
the disposable income of everyone.
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6. Increased anxiety and concern for everyone
We would expect that the factors listed above would have led to increased anxiety for every
British adult citizen, and that it would have affected most negatively. However, the extent of
the impact is potentially very different in degree. Some households might only be affected
marginally, others much more deeply.
7. Institutional resilience prevents major disruptions in the lives of the majority
Everyone is affected by the crisis, but the majority of British citizens have continued to live
their lives as before, by some important criteria: they will have kept their jobs and homes.
This is because despite severe disruption the crisis did not lead to dissolution of core societal
institutions. In fact, even during the Great Depression the economy did not totally collapse
and the majority of workers kept their jobs. In the 21st century, societies are much more
resilient, their institutions can withstand shocks better than in the past, not least because the
state has the institutional capabilities, political and financial power to support the economy
and labour market (e.g. Castles, 2010; Fligstein, 2001: 89-94). So overall, despite the
pervasive negative impact of the banking crisis, we also expect continuity and stability to
have been dominant.
In brief, we expect that the financial and economic crisis of 2008 had an impact on British
households, but that the scope and level of impact depends on the circumstances of the
households. Some households might have experienced disruptive negative effects on their
household finances which forced them to respond quickly and profoundly, whereas for others
the impact was only marginal or even positive. This paper aims to understand how
households were affected by the crisis and how and why they responded differently to similar
threats. It is structured as follows. The second section describes our data collection process
and presents some hypotheses about behavioural responses to the crisis. Based on this we
developed an analytical framework that organises our data according to type of material
impact of the crisis and behavioural response. This framework enables us to show how
households were affected and why they responded differently. Section four presents the
findings of our analysis. The general findings are discussed in section five, which is followed
by a conclusion.
2 Data and Hypotheses
We interviewed 61 couples in households above average income. The selection criteria of our
target households were income (30 above £40,000 p.a. and 30 above £60,000 p.a.), age (3455 years), home owners (outright or mortgage) and children living in the household. Half of
the couples were recruited in England and half in Scotland. Using the Family Resources
Survey 2007-8 (FRS, 1979-2008), we estimate that 9 percent of the British population share
the characteristics of the sample.
This means we have chosen households that are in paid work and who are therefore part of
the “stable majority”, despite being affected by the crisis. However, for the reasons listed
above we assumed that many of them would be affected in various ways, and our interest was
what impact exactly the crisis has had on their material circumstances and on their decisions
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and attitudes about risks and risk management strategies. Specifically, our analysis was
guided by the aim to explore how the financial circumstances of households affect attitudes
and decision-making. We wanted to understand better the different types of connections
between material conditions and behavioural responses. To achieve this, our starting point
was to group households according to the types of material changes they have experienced as
a result of the crisis; we then explored what decisions were made, if any, in response to these
impacts, and what reasons couples gave for changing their behaviour.
Rational choice approaches suggest that individuals and households make financial decisions
by calculating the possible gains and losses their decisions might have in order to work out
the optimal course of action. Based on such a perspective, one might assume that because of
the reasons listed above we would find that the four types of material impact on households
we found as a result of the crisis would lead to changes in behaviour in the following four
ways:
1. Negative material impact on household finances  behaviour adjusts to loss
2. Neutral material impact on household finances  no change in behaviour
3. Positive material impact on household finances  behaviour adjusts to gain
4. Negative and positive material impact on household finances  behaviour adjusts to loss
and gain
Firstly, those households that experienced a negative material impact on their finances due to
the crisis would be expected to make decisions that help to adjust to this loss, mainly through
compensation. Secondly, households who have not experienced financial loss would not be
expected to change their existing risk management strategy. Thirdly, if households
experienced mainly a positive impact of the crisis (e.g. promotion, better business
performance due to the crisis), they would gain income or financial security and therefore
household members would be expected to adjust to these change in circumstances. They
might cancel an income protection insurance policy because they feel more secure in their job
or they might top-up their insurance premium to reflect the increase of income for example.
Fourthly, some households have lost in one area but gained in another, this is especially true
for couples were both spouses can have contrary experiences, for example one partner might
be promoted, while another is made redundant. In this situation a change in strategy is
expected, but it is not possible to say what it might be.
Our analysis of the data below suggests that responses to material change are more complex
than the rational choice model assumes. In that regard our findings bear out those by critiques
of rational choice approaches who have shown that individuals and households act rationally
only in particular situations (Berezin, 2005; Kahneman and Tversky, 2000; Taylor-Gooby,
1999; Thaler and Sunstein, 2009; Weber and Dawes, 2005). More likely are situations of
bounded rationality and emotional decisions.
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The following empirical analysis will demonstrate this complexity, and by focusing on the
explanations that households provide for their response to changed material circumstances,
we will attempt to illuminate why people chose certain paths.
3 Framework for data analysis
According to the material impact they have experienced as a result of the crisis, we have
allocated the couples to four groups. Due to the scale of the crisis, all of our 61 couples
expressed feelings of concern and anxiety and they said that they had less disposable income
due to inflation. We have not taken this type of loss into account when grouping couples, but
only more significant changes affecting household finance. Also, where one partner was
affected negatively and the other partner’s economic situation was not affected was treated as
overall negative impact, the same applies for positive material impact. The grouping was
based on what the interviewees told us about the impact the economic downturn had on their
lives; they are therefore based on the subjective assessment of people’s circumstances. In a
second step we created sub-groups from these four main groups, according to the decisions
they made in response to the material change. The two sub-groups are
 no changes made (1)
 changes made (2)
These two sub-groups created eight groups overall. Using this framework we then explore the
reasons couples give for their behaviour facing the crisis; the analysis shows why couples
affected similarly respond differently, for example in the case of negative material impact
some couples made changes and others not.
4 Findings
On the basis of 61 qualitative household interviews we show what types of responses to the
crisis exist in the population. Which ones are most typical could then be established by a
larger survey, because our sample is too small to be representative of responses to the crisis
in the wider population. This notwithstanding, below we add the numbers of responses in
each group; this is because large groups might indicate typical responses.
To start our analysis we have grouped our couples according to the framework introduced
above (see figure 1). Firstly we organised them according to whether the financial crisis had a
direct material impact on their lives. For half of couples this was not the case (31 = 51%); the
second largest group were those that felt they had been negatively impacted (19 = 31%), but
there are also those for whom the crisis brought losses as well as gains (7 = 11%), which do
not add up to an overall loss or gain, typically because they meant a loss for the one and a
gain for the other partner. Finally, the crisis has also brought material gain to some
households (4 = 7%).
Before exploring what couples say in detail about how they cope with the impact of the crisis,
we wanted to check how exogenous factors such as age, income, region (Scotland/England)
or employment sector (public/private/self-employed) might influence how a couple was
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affected. We used cross tables to find any interesting patterns or variance. We also checked
for intervening influences such as region and income together. As we will show, overall,
these factors seem to make little difference for couples’ responses, with only minor
exceptions.
To explore whether a reaction to the financial crisis may differ according to the maturity of
the households and their investments, we grouped the respondents into two age groups, the
younger group including all those aged 34 to 44 years (n=31), and the older group including
those aged 45-55 years (n = 30). The results show that younger and older households were
affected very similarly: in both groups the majority of interviewees said that they were not
affected by the crisis (16 = 52 % and 15 = 50 % respectively) and the second largest groups,
again, were those who were negatively impacted (10 = 32 % in 34-44, 9 = 30 % in 45-55).
The only difference between both groups is that none of the respondents in the younger age
group reported a positive impact of the crisis, as opposed to four (= 13 %) in the older age
group. We will keep this in mind when exploring the qualitative data but expect that such a
variation could be an artificial result of our small sample.
Regarding income, once more, we found that in every income group a large part of
respondents were not affected by the crisis (4 = 57 % in high; 12 = 43% in medium;
15 = 58% in low income group), while the second largest groups were those negatively
affected (11 = 39 % in medium, 8 = 31 % in low income).2 The exception here is that none of
the couples in the highest income group (n = 7) reported a negative impact of the financial
downturn. Again, we will consider whether level of income might play a role for this pattern
but do not expect to find any conclusive evidence for this.
We also wanted to know whether Scottish and English couples have experienced the crisis
differently. Our data suggests that a large part (35 = 58 %) has not, but that some differences
might exist. Half of those reporting a positive impact were Scottish (= 2), the other half
English. In the group not affected by the downturn we find the same pattern (15
Scots = 48 %). However, we found some differences regarding positive and negative impact.
More Scottish couples speak about both a positive and a negative material impact of the crisis
on their lives (5 = 71 %) and fewer Scottish couples have experienced a negative impact (8 =
42 %) than English couples (11 = 58 %). Once again, in our qualitative analysis of answers
we will consider this observation.
If we take income and region together, there is no consistent pattern of response. In the lower
income group, there was an equal split between English and Scottish couples who felt no
impact (53 % Scottish), a negative impact (50 % Scottish) and both a positive and a negative
impact (50 % Scottish). However, income and region might have made a difference in the
group of those who responded positively (n = 4) because the middle income group was purely
Scottish, but no Scots were in the higher and lower income groups. The small size of the
group makes it difficult to build a typology, nevertheless, we will explore the interviews
further to see whether there is any more systematic explanation for this pattern.
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Finally, reaction to the financial crisis did not differ according to sector of employment. The
most common response for all employment types was that the crisis had no impact on them,
and this was equally true for public and private sector workers. Indeed, half of those
households where the main income earner worked in the public sector (n = 10) and half of
those in the private sector (n = 18) said the crisis had no impact on them. The latter category
can be split into those working for small private employers where three (60 %) said they had
not experienced any material impact, and those working for larger private employers where
15 (48 %) did not feel the crisis had an impact. In those households where the main income
earner was self-employed, three (60 %) also reported no material impact as a result of the
crisis. Once again, for all employment sector types, the second largest group was those
reporting a negative material impact (public 8 = 40 %, private 9 = 25 %) and self-employed
(2 = 40 %). However it is interesting to note that when the private employment sector is
broken down into small and large employers, employees working for small private companies
did not report a negative material impact of the crisis. The numbers are small as only five
couples had a main income earner working for a small private company, but we will explore
the data to see if we can find an explanation for this result. Along the same vein and of equal
interest is that no self-employed main income earners reported a positive outcome of the
crisis. Although interesting, this again is based only on five households and we can not
expect to be able to suggest this would be the case in the wider population.
Summing up, in line with our assumptions about the financial crisis at the outset, our sample
of households is affected by inflation and all are concerned about the crisis, but they also
display a lot of stability: the majority of respondents stated that they have not been affected
considerably by the financial crisis; at the same time there is also a larger group who suffered
losses. Whether someone loses, gains, or is unaffected by the crisis appears to depend little on
their household income, whether they are Scottish or English, on their age or the employment
sector they work in.
4.1 How did the crisis affect behaviour?
After grouping our couples by nature of material impact, we divided them further by looking
at whether they decided to change their income protection behaviour in response. We wanted
to explore whether or not people with the same type of material impact respond in the same
way, and how they explain their behaviour. Once again, across the board couples were very
aware of increased prices and tighter budgets, and this was not taken into account when
considering behavioural changes. In the following, we present these findings, drawing on the
explanations that the couples gave for their behaviour. The findings are summarised in table 1
and a detailed overview can be found in the appendix table A.1.
4.2 Behaviour of group affected negatively
Of those couples that reported having suffered a negative impact as a result of the crisis
(19 = 31 %), most (14 = 74 %), changed their behaviour as a result. We have identified two
main factors that influence changes in behaviour, namely the immediacy and the scale of the
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impact, which we explore below. First we will look at the few couples who were negatively
impacted but did not change their behaviour (5=26%) either because they felt that they did
not have the capacity to react to the relatively marginal losses they faced or because their
present employment security outweighed the need to react to prospective losses.
Negative material impact but no change (A)
In this group couples do not change behaviour despite having experienced material loss. The
two subgroups are distinguished both in terms of the reasons they give for the continuity in
their behaviour and the immediacy of the loss they have experienced. In addition, the type of
impact is important; whilst the first group have all experienced income loss, those in the
second group have seen declines in their investments and pension assets.
A1 Immediate income loss and no means of protecting income - living day to day
First, we identified couples where at least one individual out of the couple has suffered an
immediate income reduction as a result of the crisis, either through effective salary cuts (no
bonus, discontinued retention payments) or a decline in their self-employed business. In all
cases the income loss can be described as marginal because it is a reduction in income as
opposed to a complete loss. Despite consequent feelings of income insecurity amongst these
couples, they did not change their income protection behaviour in light of their loss because
they did not feel they had the resources. These couples describe their income as only just
sufficient for day-to-day living and they say that they have no spare money to protect
themselves against any future losses through savings or insurances. Generally, they present
themselves as being more at the mercy of their situation rather than in control and as lacking
the capacity to respond. (‘I have to live for today and I can’t always plan for the future.’
Robert). As a result, they have a fatalistic and often pessimistic attitude towards their futures.
A2 Prospective property or pension loss compensated for by present employment
security – we feel comfortable for now and cross the bridge when we come to it
In the second group couples had not experienced an immediate negative impact but rather
were aware of a longer-term loss they are facing as a result of the crisis. These couples either
saw their property decline in value or a tightening of their occupational pensions (scheme
changes, higher contributions, lower assets). There was no immediate behavioural response
because the loss would be experienced in the future rather than the present and because the
loss is considered fairly negligible when compared with something like the loss of current
income. In addition, these couples feel secure overall because if needed they would be able to
cut expenditure, they have equity in their properties, their employment is stable, they expect
to be entitled to redundancy pay, and they have insurances and/or savings. This security
appears to them as sufficient compensation for a long term loss. For example Daniela said
‘We had insurances, we haven’t changed anything’ and according to Hamish ‘There is an
element of uncertainty about pensions, again because of our personal circumstances our
attitude in terms of what we’ve got in place hasn’t changed’. Couples in this group do not
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worry excessively because they already have the resources available to respond to a future
more immediate loss. As a result, they have a sense of control over their own situation and
have a relatively relaxed attitude. All couples in this group were in the middle income bracket.
Negative material impact and change (B)
This group includes those couples who experienced a negative material impact as a result of
the financial crisis and did change their behaviour in response. In this case it is possible to
identify three different groups which depend on the factors immediacy and scale of material
impact. The three groups are those that responded to immediate losses by increasing their
protection, those who try to increase their protection in light of prospective losses and current
feelings of employment insecurity, and those who feel compelled to react immediately to
substantial income losses. Once again, the perceived immanency and scale of the impact are
the main distinguishing factors, but in this group employment sector and age are also
significant.
B1 Immediate loss but means of protecting income
In this group couples are facing an immediate although relatively marginal income loss as a
result of the crisis, but respond to protect themselves against any further losses. It is possible
to further divide this group into two subgroups distinguishable by employment sector.
B1.1 Self-employed – “Hard grafters”
There are couples within this group who have one self-employed partner. Both, Quentin and
Uilleam, have experienced an income loss related to their business. It is a reduction in income
as opposed to a loss of revenue altogether. In response, the self-employed partner has either
taken additional work as an employee (Quentin) or increased the hours they work on a selfemployed basis (Uilleam). There seems to be little choice in terms of changing behaviour in
this way, but the interviewees in this situation seemed accepting of the need work additional
hours to achieve the same level of income in the current climate
B1.2 Public employees – Not losing hold of the Golden Handshake
The couples in this group have one partner employed in the public sector who is very
concerned about policy changes to their occupational pension. To protect the value of their
current pension fund, they will take early retirement. The couples in this group were in the
older age group (50+) and therefore had the opportunity to respond in this way.
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B2 Prospective pension loss and no employment security - Making attempts to protect
for the future
In this group couples had experienced or anticipated prospective losses of their pension
investments. However, although their immediate income had not been affected, they felt
generally insecure about their incomes, either because they worked as self-employed or were
aware of discussions about redundancies within their organisations. These couples took steps
to protect themselves, not least by reducing their household expenditure and saving more. In
addition, most couples in this group increased their pension contributions and lowered the
risk level of their pension assets. However, other couples withdrew from saving for
retirement. For instance, Brian and Betsy, after seeing a substantial decline in their fund lost
confidence in their personal pension scheme altogether and decided that they would instead
invest in an ISA for their retirement. A different strategy for Niamh and Niall was to try to
reduce the amount of household debt by Niall taking a part-time job in addition to her fulltime employment. These couples were very actively trying to protect their income even
though the actual material impact they had suffered would not be tangible for some time. The
breadwinner of all these couples was in the younger age group and noteworthy more
specifically in the 40-44 age group.
B3 Immediate and substantial income loss forces behavioural change - The unemployed
In these couples at least one partner will have completely lost their income as a result of
being made redundant during the financial crisis. This is experienced as an immediate and
substantial loss that disrupts the household economy. These couples thought they had no
choice but to seek new employment and they were successful, except for Rhiannon, who
chose to study full-time as part of a career change, relying on her redundancy payment and
her partner to fund this, and Tina, who was still seeking work at the time of the interview and
was solely reliant on the income of her partner Ted.
All of these couples have a negative attitude about the labour market, the shortage of jobs and
the insecurity of temporary and fixed-term contracts and less occupational protection with
new employers. Gavin who lost his job at a private company describes the loss of control in
the following way:
‘I worry a lot more about things. I don't want to get down that road again when I was unemployed.
It is a scary thought but there is not much I can do about it if it does happen. Just to get on with it’
(Gavin).
4.3 Behaviour of group unaffected materially
Of those couples who reported no material impact as a result of the financial crisis
(31 = 51 %) the majority (28 = 90 %) did not change their income protection behaviour
because they said that they felt no impact of the crisis and so felt no need to change the way
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they protected their income. We will also consider the three couples (= 10 %) who did change
their behaviour in light of the performance of the financial markets.
Neutral material impact and no change (C)
C1 What crisis!? - The stable core
For these couples, material circumstances have not changed as a result of the crisis and
although their risk awareness may have increased, they are not concerned enough to make
any significant changes. Generally, they can be referred to as an economically stable core,
despite some increased concerns and slightly less disposable income due to higher inflation.
This makes them feel fortunate. We can identify three factors responsible for the confidence
these households show: they have confidence in their capacity to change, a secure income
(through insurances and employment sector) and other experiences in their lives hold a
greater significance for them than the financial crisis. If more than one of these factors was
present in one household, then the concerns were lowest and the couples felt more fortunate.
Firstly, some couples see themselves in a position where they have the capacity to respond to
a potential negative material impact without making specific arrangements in advance.
Should it occur, they would reduce their expenditure, increase their working hours, rely on
the partner’s high earnings, find alternative employment or set up a small business.
Interestingly, specifically those in the middle and higher income brackets suggested that if
they were to lose their jobs, they could become self-employed to secure an income.
Secondly, couples often feel that they do not need to make any changes because their current
income is protected. One way in which they felt protected was through income protection
insurance, which was relevant, however, only for couples in the lowest income bracket
Lindsey/Lawrence, Tia/Tay, David/Davina). Job security either in the private or public sector
also generated feelings of stability and confidence. In the private sector, those who worked in
businesses that could benefit from the crisis were most likely to feel secure. For instance,
Carl works as a legal aid criminal solicitor funded by the government. He expects that his
work may increase because of social security cuts that could lead to an increase in criminal
activity. In the public sector, despite widespread knowledge of government cutbacks and
potential redundancies, having at least one partner employed in this way provided a feeling of
security. Even in couples were both partners worked in the public sector there was no fear of
redundancies.
Finally, some couples had already changed their behaviour towards income protection
because of other experiences in their lives and the financial crisis did not prompt any further
changes. They attribute any changes they had already made rather to a) their age, b) having a
child, c) pre-existing debt and/or d) previous economic shocks to their businesses.
a) Those couples who mentioned that getting older was more relevant than the economic
crisis tended to be around forty years old. The ‘big forty threshold’ (Harry, but also Greer
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and Emily) seems to be a milestone when couples start to think about long term protection
and consider taking out insurances or protecting their income more strategically. For these
couples, changes during the last three years were associated with crossing the age of forty
rather than the economic crisis.
b) Having a child had a much greater impact on the household finances than the economic
crisis. Generally, all couples suggested that children changed their attitudes and behaviour
towards income protection, but in this group it was mentioned by four couples, three of
whom gave birth to their first child when the financial crisis started:
Hannah: I think we’ve put everything in place because of the children, I think… (over spoken)
Hugo: Rather than the economic downturn (Hannah: Downturn)
Gordon and Greer illustrate that the combined effect of age and children are more relevant to
their attitudes and behaviour than the economic crisis:
Gordon: The kids are the biggest eye-opener in world. As soon as you have kids you start thinking
about... (01:09:30)
Greer: So three years definitely changed because of my age and because of my children’s age.
(01:09:34)
c) In one case, attempting to manage pre-existing debt was more significant than responding
to the economic crisis. In spite of feeling very secure in her employment, Mhairi has taken an
additional part-time job. This was to pay down pre-existing debt and have more disposable
income rather than as a result of the economic crisis.
d) Finally, for some, other economic shocks within their industries were by far more
consequential than the financial crisis of 2008/09. For instance, Andy and Anna, both working
in the aviation industry, were more affected by the 9/11 terror attacks and the subsequent
decline of the business than the recent downturn. In the same way, Ben reports that the
dotcom crash of 2000 had a much bigger impact on him than the present financial crisis.
In brief, for the couples in this group the financial crisis created no additional material
pressure to change their behaviour and therefore they were less concerned. Three
complementary factors supported this feeling of comfort with the status quo, namely their
capacity to implement changes if needed in the future, their feeling of being protected (either
by insurances or their employment sector) and their experience of other personally more
consequential events.
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Neutral material impact and change (D)
D1 No loss but changes made in light of financial market performance - Proactive
investors
Some of the couples did change their behaviour despite not having suffered a negative
material impact as a result of the financial crisis. All of them changed their behaviour in
response to the declining performance of the financial markets. These couples appear to have
made a calculated judgement about both the short-term security and longer term performance
of their investments and reacted in response. They gave an impression of active management
and control and generally felt quite secure. For instance, Osla and Odhran took the
opportunity to enter the rented property market after the crisis because they wanted to
capitalise on lower property prices:
‘We bought it when houses were cheap which just like now. So I think if you do have the
opportunity to buy, you could buy now, buy now while it's low. And then hopefully you keep it as
long term investment for like ten years until house prices start go up and things get a wee bit
better and then make a profit then. But that area was Odhran's idea so, it was a good idea’ (Osla).
For Liam the crisis was the reason to change his investment strategy to less risky accounts:
I don’t think circumstances, the economic circumstances have really changed my whole outlook
on financial matters generally, apart from say specifics such as investments or where I invest, how
I invest, erm, purely and simply because that’s been a poor area for the last five or six years and
so that decision was made three or four years ago that I wasn’t going to invest any money in
financial markets anymore because they are just so risky so…
5 Summary of Main Findings
We interviewed 61 couples with above average incomes and asked them whether they had
been materially affected by the financial crisis and how they had responded. In our analysis
we began by looking at whether factors such as age, income, region or employment sector
could be used to explain behavioural response to material impact and throughout our analysis
found these characteristics to be largely irrelevant. We then focussed on whether the nature of
the material impact could determine behavioural response. This initial paper discusses only
the couples that reported a negative and neutral material impact.
Our main findings at this stage are as follows:
1. Most of the couples that we interviewed felt materially unaffected by the financial crisis.
Their job remained stable, though the salary did not increase with inflation. They were
worried about inflation and often suggested, without much conviction, that they had made
some fairly minor expenditure cuts in light of increasing prices. Moreover, although they
expected their pensions may have performed poorly, they were not aware of the actual
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performance. It should be noted that the stability reported by these couples is no doubt
influenced by the fact that we were researching those households who were still earning more
than the British average household. The second largest group consisted of couples who
reported negative material impacts.
2. The nature of the impact of the financial crisis (positive, negative, neutral and
positive/negative) does not determine behavioural response. In both the negatively affected
group and the group that reported no material impact, there were couples who changed their
behaviour and couples that did not. This means that our original assumptions about how
material impact would influence behavioural response do not stand. Rather we observed that
behavioural responses to material impacts are more complex.
3. For those who report a negative material impact, the severity and immediacy of the impact
are very important factors in determining behavioural response. Indeed, in the negatively
affected group, only those who had experienced immediate and substantial losses (B3)
changed their behaviour consistently. Couples in this group had at least one partner who had
experienced a total income loss, through redundancy. In other words, we have found that
whether the impact is considered marginal or substantial and whether it will be felt in the
short or longer term are very important in shaping behavioural response.
4. Feelings of job security are important when responding to prospective losses. Groups A2
and B2 both reported a negative material impact that would be felt in the longer term. Group
A2 felt they did not need to respond to these changes, primarily because their feelings of job
security compensated for these long-term, relatively insignificant losses. Those in B2 did not
have these same feelings of job security which might explain why they felt they needed to
react to the impact of the crisis.
5. Finally, the negatively impacted groups who had felt they had no capacity to respond to the
immediate income loss they faced (A1) and those who were forced to change because of
immediate and substantial loss (B3) are similar in the sense that they felt a loss of control
with regard to their household economy and constrained in terms of their actions. Either they
feel they cannot respond (A1) or they are forced into making changes they wouldn’t
otherwise have made (B3). These groups are arguably most negatively impacted by the crisis
in attitudinal terms because they are more at the mercy of their situation than any of the other
groups.
Outlook
In this paper we presented the first analysis of the impact of the financial crisis on the
behaviour of households with above average incomes. Further analysis will consider those
groups that felt either positively impacted or both positively and negatively affected by the
crisis and their behavioural responses. We learn from this paper the importance of
considering not only the nature but also the severity and immediacy of the impact of the
financial crisis.
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Endnotes
1
The paper is part of the ESRC project ‘Welfare Markets and Personal Risk Management in England and
Scotland’ (RES-062-23-1954), Jochen Clasen (PI), Traute Meyer & Alison Koslowski (CoI). The data and
analysis presented here is based on the collaboration of the research team, with essential contributions by Jochen
Clasen and Alison Koslowski. The main aim of the project is to understand how and why above average income
households protect themselves against the risk of unemployment, sickness, retirement, long term care and higher
education costs. The interview guide was designed around these issues but questions regarding the impact of and
the attitudes towards the financial crisis were asked consistently throughout the guided interviews.
2
We differentiate between high (above £90,000 annual household income), medium (£60,001-90,000) and low
(£40,000-£60,000) income groups. The low income group earns above average income, but within our sample
design they earn relatively low income compared to the other interviewed households.
References
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15
Table 1: material impact of the financial crisis and behavioural response
NEGATIVE
IMPACT
NO CHANGE
A1 Immediate loss, no capacity to react
(= 2)
CHANGE
B1 Immediate loss, capacity to respond (= 5)
B1. Self-employed - Hard Grafters (= 2)
- work more
B1.2 Public employees - Golden Handshake (= 2)
- receive early retirement
A2 Prospective loss, job security (= 3)
- employment protection
- relatively marginal impact but capacity
to respond
B2 Prospective loss, no job security (= 5)
‘we feel comfortable for now and cross the bridge
when we come to it’
B3 Immediate, substantial loss forces change
(= 5)
Unemployed
NEUTRAL
IMPACT
C1 The stable core (= 28)
- low level of concerns
- inbuilt flexibility to respond
- income security / insurances
employment protection
- other events more significant
D1 Proactive investors (= 3)
- management of investments
/
16
Figure 1: Tree of material impact and behavioural response (all interviews)
Material Impact
Behavioural Response
Behavioural Response
Groupings
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Appendix
Table A.1: Detailed grouping and couple characteristics
NEGATIVE
IMPACT
NO CHANGE
A1 Immediate loss, no capacity to react
32 Ian and Isabella (40-60) (E) (O)
53 Robert and Rebecca (60-90) (E) (Y)
CHANGE
B1 Immediate loss, capacity to respond
B1. Self-employed
51 Quinn and Quentin (40-60) (S) (Y)
58 Una and Uilleam (40-60) (S) (O)
B1.2 Public employees
38 Karen and Karl (40-60) (E) (O)
39 Keith and Katherine (60-90) (E) (O)
NEUTRAL
IMPACT
A2 Prospective loss, job security
B2 Prospective loss, no job security
13 Daniela and Dale (60-90) (S) (O)
31 Hayley and Hamish (60-90) (S) (Y)
35 Jack and Julie (60-90) (E) (O)
21 Felix and Felicity (60-90) (E) (Y)
37 Justin and Jasmine (60-90) (E) (Y)
18 Edine and Elliott (60-90) (S) (Y)
45 Niamh and Niall (60-90) (S) (Y)
6 Brian and Betsy (40-60) (E) (Y)
B3 Immediate, substantial loss forces change
11 Cheryl and Colin (40-60) (E) (Y)
28 Gwyneth and Gavin (40-60) (S) (Y)
52 Rhiannon and Roy (40-60) (S) (O)
53 Simon and Sarah (60-90) (E) (O)
56 Ted and Tina (60-90) (E) (O)
C1 The stable core
- low level of concerns
33 Iona and Iain (60-90) (S) (O)
36 Jemima and James (40-60) (S) (Y)
48 Osmond and Orla (40-60) (S) (Y)
50 Polly and Peadar (40-60) (S) (O)
54 Selma and Scott (90+) (S) (O)
61 Wanda and Wallace (40-60) (S) (O)
-inbuilt flexibility to respond
3 Alice and Aaron (40-60) (E) (Y)
44 Mike and Mary (40-60) (E) (O)
10 Catherine and Clark (40-60) (S) (O)
16 Drew and Donald (60-90) (S) (Y)
12 Coira and Cedric (90+) (S) (O)
23 Fran and Faing (60-90) (S) (Y)
49 Paul and Pippa (90+) (E) (O)
- income security
insurances
42 Lindsey and Lawrence (40-60) (S) (O)
D1 Proactive investors
41 Liam and Lucy (40-60) (E) (O)
46 Nigel and Nina (60-90) (E) (O)
47 Osla and Odhran (40-60) (S) (Y)
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57 Tia and Tay (40-60) (S) (Y)
14 David and Diana (40-60) (E) (O)
employment protection
15 Derek and Davina (60-90) (E) (Y)
9 Carl and Cerys (60-90) (E) (Y)
2 Aileen and Alistair (40-60) (S) (O)
25 Gareth and Gail (60-90) (E) (O)
- other events more significant
30 Harry and Heather (60-90) (E) (Y)
20 Eric and Emily (40-60) (E) (Y)
4 Andy and Anna (60-90) (E) (Y)
24 Fred and Fiona (60-90) (E) (O)
26 Greer and Gordon (60-90) (S) (Y)
29 Hannah and Hugo (40-60) (E) (Y)
43 Mhairi and Manny (60-90) (S) (Y)
5 Barbara and Ben (90+) (E) (Y)
Income group = (40-60k) (60-90k) (90k+). Region = (E) English, (S) Scottish. Age = (Y) 34-44, (O) = 45-55
19