We are spending less on the things that make us happy, thanks to Covid

Friday, 29 July 2022

While the financial fallout of Covid was not as harsh as feared, it still led to a loss of life satisfaction and financial optimism.

The Ministry of Business, Innovation and Employment (MBIE) this week released the third wave of research tracking the spending and mood of a nation, surveying around 1700 people, at six-month intervals. The first survey was March 2021, a year after Covid struck, the third was in March 2022.

Covid would rapidly change consumer concerns, behaviours and experiences, the initial study surmised. MBIE set out to monitor those impacts, Simon Gallagher, consumer services national manager says.

“We wanted to know more about how the pandemic was changing consumer circumstances and to develop and tailor our resources to support them.”

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MBIE examined income, employment and financial situation; personal well-being (mental and financial); confidence and ability to pay for essential and non-essential goods and spending behaviour and priorities.

While employment and pay was not as hard hit by Covid in the past 12 months, as respondents feared, there was still a decline in well-being, with more income spent on necessities such as groceries, rent, insurance and petrol.

In contrast, fun luxuries such as entertainment, dining out and travel expenditure had been cut out, as high inflation followed the pandemic.

That tallies with Kiwi Wealth's annual State of the Investor Nation report, released on Wednesday, which found that 37% feel less wealthy than a year ago.

“Despite considerable optimism… [that] mental well-being would improve… in reality, mental well-being has declined round-on-round,” Gallagher says.

“Covid-19 took the world by surprise, and it appears it has been felt by almost everyone in one way or the other.”

Financially secure people reported the most positive impacts, while the financially insecure had a very different experience.

People on high incomes, homeowners, or those in full-time jobs fared quite well, the study found, with an increase in personal or household income. They were more likely to have increased their savings, or increased spending on investments.

Hardest hit was a group described as at-risk consumers; Māori, Pasifika and the youngest participants, households with children, those flatting or renting, and low-income households.

They were significantly more likely to be involuntarily unemployed, having lost their job in the last year, working less than they want or need, or to had a decrease in personal and household incomes.

At-risk consumers are significantly less confident they can pay for major household items, surprise bills, regular bills and necessities as well as being able to find the items they want or need.

Meanwhile, a shift to online shopping had also caused downstream issues such as a fall in consumer optimism, Gallagher says. There were more issues with delivery delay or non-delivery.

“Anecdotal evidence suggests this, but the surprise is that we are seeing more consumers making these choices because they have no other alternatives.

“When expectations are not met, the effect is that consumer optimism often fell. When asked if consumers expected their purchasing confidence to improve in the next six months, the response was often positive, but experience were below expectations.’’

Mental well-being continued to decline. Fewer than half (49%) rated their mental wellbeing positively, down from 54%, and 14 percentage points lower than prior to the first Covid-19 lockdown in March 2020.

And yet the employment scene is more rosy; MBIE found that 89% of respondents in full-time employment in August 2021 were similarly employed six months later. Only 5% were involuntarily unemployed.

According to MBIE, some perceived their employment as more vulnerable than it actually was, with 14% of respondents in August anticipating they might lose their job within six months - whereas only 5% did.

Positive perceptions of overall financial well-being declined significantly with the arrival of Covid-19. Those describing their financial wellbeing as good or very good fell 15 percentage pointsfrom prior to the first Covid lockdown to March/April 2022.

That was fear-based and understandable, says Dr Janine Williams, a lecturer in the School of Marketing and International Business at Victoria University.

“When fear occurs in response to threat in the external environment one feels uncertainty. This results in increased perceptions of risk and due to the uncertainty about potential outcomes in future, decisions become more risk averse.

“This is not all good … the virtuous self-control we exhibit can be detrimental to our wellbeing if we engage in such self-control to the extent that we do not consume welfare-improving options due to frugality.

“This response often is the result of prior guilt after making decisions to indulge, and may be associated with fear and uncertainty.”

MBIE found incomes increased since August, with 19% having experienced an increase and 12% a decline, meaning the impact of Covid-19 on both personal and household income changes has declined over the last six months.

Feelings of employment vulnerability remained, with 15% feeling that they may lose their job by October, even though respondents were significantly more likely to report working more hours than they want/need (24%) than six months ago (12%).

Almost one in four described their overall life satisfaction as not so good or poor. A year ago that was one in six, six months ago, one-in five.

Being unable to purchase luxuries can have an impact on your sense of well-being, says Dr Williams.

Consumers buy some goods with more instrumental purpose, while others are consumed for more hedonic pleasure, she says.

“They consume such products as they pursue goals related more to pleasure or to utility, but this is not to say these are mutually exclusive,” she says.

“Necessities are often associated with more instrumental or functional purpose while hedonic choices are often associated with luxury (not to say that a lawn mower cannot bring the owner joy but that some purchases are driven more by hedonic pleasure).”

Hedonic consumption is related to pleasurable experience and positive emotion such as fun, fantasy and excitement while utilitarian consumption serves a largely functional purpose, Williams says.

Which is not to say happiness always follows spending on luxuries.

“Interestingly, research finds decisions motivated by hedonic goals are often associated with pleasure in the short-term but may also lead people to feel negatively about themselves as a consequence,” Williams says.

They may feel bad or guilty after a spontaneous purchase, reflecting on themselves as indulgent or frivolous.

“Consumers trade off their hedonic consumption decisions in terms of costs - to their savings or maybe their health. Hence they are often associated with a lack of self-control.

“Consumers make forecasts about happiness and how long it will last as a result of a purchase. These forecasts are influenced by what is going on around them and are often inaccurate,” she says.

MBIE conducted the survey over three rounds to track change over time and compare anticipated change with actual change. It will feed into policy implementation support of businesses and consumers and how to address their pandemic-related issues.

Findings have been shared with other government agencies, business and NGO stakeholders to help their work on consumer issues.

The findings underpin Consumer Protection’s hardship and affordability campaign which has just begun and will run for the next four to six weeks online.

N.B. The original version of this story said the survey series was intended to be conducted over five rounds. It will now end after round three.