This analysis looks at how unexpected changes in income impacted consumers during the Covid-19 pandemic.
Our economic analysis looks at how the Covid-19 pandemic impacted consumer welfare, how consumers responded to different types of income shock in terms of saving, consumption, and borrowing behaviours, and whether income shocks can lead to financial distress.
On average, we found:
- consumers were resilient to negative income shocks
- consumers made sensible financial decisions and efficient use of credit when experiencing income shocks
- permanent negative shocks led to consumers cutting back on consumption
- transitory negative income shocks led to increased borrowing, but without increasing the probability of arrears.
As part of the FCA’s commitment in the Consumer Duty, we are focused on how firms can offer support to consumers that face changes in circumstances that lead to them becoming vulnerable.
Authors
Jonathan Shaw, Andrea de Mauro, Khashayar Rahimi, Sam Hainsworth
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