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Financial strain in the United Kingdom

Author

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  • Declan French

Abstract

UK households have been exposed to economic recession followed by a government programme of austerity, putting many under severe financial strain. Using UK longitudinal household data, we find that the feeling of not being able to cope financially matters for individual mental health and general health status even when controlling for individual heterogeneity and potential reverse causation. We develop a theoretical model which brings some of the rigour of lifetime economic decision-making models to bear on our understanding of the causes of financial strain. Our estimation results for this model highlight that shocks to how we view our financial situation are more important for subjective financial well-being than not having enough income or being liquidity constrained. Recent welfare and pension reforms intended to reduce budget deficits may have exacerbated financial strain and thus increased public healthcare costs. In the case of disability benefits reform, we find that the uncertainty generated by an opaque process of reassessment caused financial strain to increase even when households were not materially worse off.

Suggested Citation

  • Declan French, 2018. "Financial strain in the United Kingdom," Oxford Economic Papers, Oxford University Press, vol. 70(1), pages 163-182.
    • Handle: RePEc:oup:oxecpp:v:70:y:2018:i:1:p:163-182.
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    File URL: http://hdl.handle.net/10.1093/oep/gpx030
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    Cited by:

    1. Ferdi Botha & John P. de New & Sonja C. de New & David C. Ribar & Nicolás Salamanca, 2020. "COVID-19 labour market shocks and their inequality implications for financial wellbeing," Melbourne Institute Working Paper Series wp2020n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    2. French, Declan, 2023. "Exploring household financial strain dynamics," International Review of Financial Analysis, Elsevier, vol. 86(C).
    3. Ferdi Botha & John P. New & Sonja C. New & David C. Ribar & Nicolás Salamanca, 2021. "Implications of COVID-19 labour market shocks for inequality in financial wellbeing," Journal of Population Economics, Springer;European Society for Population Economics, vol. 34(2), pages 655-689, April.
    4. French, Declan & Vigne, Samuel, 2019. "The causes and consequences of household financial strain: A systematic review," International Review of Financial Analysis, Elsevier, vol. 62(C), pages 150-156.
    5. Belmonte, A & Pickard, H, 2022. "Safe at Last? LATE Effects of a Mass Immunization Campaign on Households’ Economic Insecurity," CAGE Online Working Paper Series 604, Competitive Advantage in the Global Economy (CAGE).
    6. Brown, Sarah & Ghosh, Pulak & Pareek, Bhuvanesh & Taylor, Karl, 2021. "The protective role of saving: Bayesian analysis of British panel data," Journal of Empirical Finance, Elsevier, vol. 63(C), pages 57-72.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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