Saving, spending and financial resilience in the wake of the pandemic

This project is examining the impact of the pandemic on saving, spending and financial resilience.

COVID-19 has had unequal effects on different households. The onset of the pandemic saw an increase in the household saving rate from 10% to 29%, but this masked differences across households. High-income households are likely to emerge with higher savings than before; low-income households are more likely to have increased debts. These differences could have long-lasting implications for inequality and lead to economic insecurity.

Policymakers need to understand the nature of these inequalities in order to best implement macroeconomic and benefit policies. The research team will be drawing upon high-quality panel data to bridge this information gap. The Understanding Society COVID-19 survey will provide evidence on how consumer finances and behaviour changed throughout the pandemic.

The project is aiming to address four issues:

1. How has the pandemic affected the financial security of different households over time? How does the state of households’ finances vary across different income and demographic groups as they emerge from the pandemic?
2. What has been driving the spending, borrowing and saving behaviour of different household groups?
3. How has the spending of different households responded to income changes and what does this imply for future spending behaviour and the effectiveness of different potential measures to stimulate demand?
4. Given the answers to the above questions, how do we expect consumer spending and households’ financial resilience to evolve over the coming months and years, and what does this imply for macroeconomic and benefits policy?

Two non-technical reports will be published in September 2021. The first report will focus on the financial security of households emerging from the pandemic. The second will focus on the implications for consumer spending and savings as we emerge from the pandemic-induced recession. These will be used to inform a variety of organisations, including the Office for Budget Responsibility, HM Treasury and the Bank of England as important policy decisions are made during late 2021. There will also be academic papers surveying the finances of different households over the course of the pandemic, setting out decomposition of spending and savings motives and discussing the determinants and measurement of individuals’ consumption patterns.