Last week the government released the latest data on household incomes. This showed that our incomes have continued to fall since the recession, mainly because wages are not keeping up with inflation and cuts to benefits. And the statistics show a big difference between the young and the old, with pensioners one of the few groups to have seen their incomes rise - although not by much - as a result of pensions being protected against inflation. Young people on the other hand have been hit by the double whammy of falling wages and an increase in youth unemployment.
How much money we have is clearly a key measure of the state of our economy, but it fails to capture the way we feel about our own financial situation. This is important because how secure people feel about their personal finances can affect their economic decisions, such as spending activity. If confidence is high, people make more purchases; whereas insecurity can cause people to tighten their belts and save more. This can also have an influence on our well-being, as our financial anxieties can impact on other aspects of our lives such as mental health, and relationships with family and friends.
Large-scale social surveys, such as Understanding Society and British Social Attitudes, routinely ask people about their financial situation. And many of these surveys have been running since before the onset of the recent recession, allowing us to track changes. The data suggests that alongside falls in income, we have seen increases in levels of our financial insecurity.
A closer look at the statistics reveals that, as suggested by the government’s income statistics, we are not all experiencing the impact of the recession in the same way. And the data also suggests that, understandably, our personal circumstances may affect the way we feel about our financial situation, as well as how much money we have. So pensioners, who are unlikely to be worried about falling wages or unemployment, and we know have felt less impact of the recession financially, are the least likely to say they have financial difficulties – and have seen only a small rise since the recession (up from 3% in 2007 to 5% in 2011).
Other groups have seen a more marked increase in financial insecurity, including unemployed people (24% up to 39%), and those with a long-term sickness or disability (19% up to 35%). Yo
ung people saw a marked rise (from 6% to 15%) but still only a minority feel that they are finding it quite or very difficult to manage financially. Of course there’s variation among the views of young people and those that are unemployed or in low paid or insecure work are likely to be feeling more insecure than others.
We may expect some young people to be hoping that their situations will change for the better and that the recession is only slightly delaying, or holding back, their careers. Indeed, when we look at how people view their future, we see young people and unemployed people as the most optimistic - with half (50%) thinking they will be financially better off a year from now. The least optimistic are pensioners and sick and disabled people, with about three in ten (30% and 29% respectively) believing that they will be worse off. These views may well be influenced by the government rhetoric around cuts to benefits, including for better off pensioners – who may be fearing the end of being shielded from austerity cuts. However we do know that there are many pensioners who are struggling to manage on their incomes.
Pensioners represent a group of key voters, so any discontentment is likely to worry politicians. Yet it might be time for economic policy to shift focus to those more in need. In times of austerity policy makers need to make hard decisions about which groups to concentrate on, and for which reasons.