The New Possible is a series of human stories and perspectives on how COVID-19 is challenging and changing our lives and livelihoods. In this installment, we explore how the crisis is shaping the way people think about financial matters.
July 2020 was supposed to be a great month for Naomi. After a lot of hard work, the 50-year-old childcare-center worker was set to complete her studies and become a fully qualified teacher in Singapore, where she lives with her husband, mother, and niece in a cramped four-room apartment.
The new credential would have opened doors, giving Naomi chances at more fulfilling work and higher income. But COVID-19 has delayed those dreams for now. Instead, Naomi will carry on her work indefinitely at the center, which has so far remained open throughout the crisis to look after the children of essential workers.
Naomi doesn’t live extravagantly. In her spare time, she loves to read, shop, and craft with recycled materials. On top of her modest income, her family receives some COVID-19 relief aid from the Singapore government. Still, the crisis has changed how she and her household think about money.
“Money right now is very precious,” she told us. “I don’t think it’s wise to shop online for new clothing and other things that are not important. The money that we have is mainly for our daily needs, like food and transportation to work.”
Naomi’s view and the experience of others we’ve interviewed line up with broader trends we see today in consumer behavior. Discretionary spending has fallen, the result of mass unemployment, wage decreases, the realities of living under shelter-in-place orders, and general uncertainty about the future. The crisis has also disproportionately affected minority communities, such as black Americans.
Looking ahead, consumers globally have a pessimistic or unsure view of their country’s economic outlook. China is a notable exception: half of consumers there expect the economy to rebound in the next few months as the country emerges from lockdown.
But how will consumers actually behave when the next normal arrives? Will we see what the Financial Times’ Pilita Clark called “a pent-up splurge of excess”? Some people we spoke to, as you’ll see below, suggest that we will. Will our lockdown-induced self-reflections lead to a longer-lasting change not only in people’s outlook but also in how they spend their hard-earned money?
Academic studies have found that past economic crises led to noticeable shifts in how consumers behave. Our research indicates that the economic impact of the COVID-19 crisis could lead to similar changes. What we’ve learned is that people around the world are thinking carefully about the future; they are searching for more financial stability, safety, and security amid rising uncertainty.
Yet what has struck us most is how much those goals—and what they mean to people—have changed.
The transition to quarantine life may have been rapid and shocking, but the emergence from it will be slow and cautious, with the next normal looming just on the horizon.
In search of stability
People told us that their sense of personal financial stability is tied most closely to their jobs, but how they assess which jobs and industries offer stability has changed. From now on, thinking about a career or business move often will mean asking, “How pandemic-proof is it?”
Some people asking that question about their current jobs are considering new careers. Arian, 35, is a new dad and self-employed real-estate broker in Chicago. His work, while susceptible to market trends, had always felt stable before the outbreak. But since the lockdown began, he has been unable to work and is now considering a “more typical nine-to-five job,” especially given the financial responsibilities to his expanded family and the uncertainty of how quickly his business will pick up again.
Others, like Naomi, have put professional aspirations on hold. Lucas, a 36-year-old father of two in Melbourne, has been a chef for 18 years. Before the outbreak, he dreamed of opening his own restaurant. Now he’s set aside that plan indefinitely. “With the current climate, we don’t know what’s going to happen,” he told us. “I have a stable job, so for now I’m better off just staying in it.”
It’s also worth noting that some of those we talked to are grateful to be right where they are. This feeling was common among those who work in areas of the economy that are seeing an uptick in business or considered essential. Liam, 52, who coordinates logistics for a shipping company in Sydney, summed this up: “If anything, we’re lucky that we’re part of a sector the government has advised needs to stay up and running.”
Nevertheless, he too wonders what his future holds. “If this keeps up and I lose my job,” he said, “how will I support myself and my family?”
Security against uncertainty
The idea of financial security—how people think about spending and saving—has also changed. Those who can save at all said they hope to save more in the future to protect themselves against the next crisis or unemployment.
“Save more” was a common refrain no matter where people live, how much they earn, or whether they had been laid off or had their wages cut. The pay of Caron, a 31-year-old who lives in Houston, was cut by a third during the crisis. “Luckily I’d saved some money before,” he told us, “and I think I’ll definitely look into saving more in the future.”
Meanwhile, people have put off big purchases like homes and new cars. Three of those in the US we interviewed who were planning to buy homes soon have delayed their plans. “There are just so many questions in the air,” said Nicole, a 40-year-old Dallas woman, “so we decided to just put it off by a year and revisit it again then.”
Family-planning decisions are also being affected. Jing, a 32-year-old woman in Shanghai, said, “We still want to have a baby and will stay healthy to prepare for it, but we will delay the plan to the time when the whole situation is getting better.”
Even the little things are being reassessed in this environment. Zara, from the UK, never had what she called “money worries” before this crisis. “This has definitely changed my outlook, and I will be a lot more focused on what I’m spending in the future,” she told us. “I won’t be buying unnecessary things like coffee or lunches out.”
Scenario planning for safety
The coronavirus crisis has created unprecedented levels of mass unemployment in markets around the world. The widespread shock has made people reflect on their own safeguards and contingency plans in ways they never have before.
In some ways, this could indicate a natural recalibration of risk after years of prosperity and a realization of our own optimism bias. In others ways, though, we heard it as a fundamental resetting of people’s personal worst-case economic scenarios. Benedetta, 44, lives with her partner and two children in Rome. Her job as an administrative secretary in an accountant’s office is safe, but her hours have been cut by 50 percent. “Although I have a permanent job,” she said, “I realize now that the economic crisis could be serious enough to affect us too. We have taken a cautious attitude.”
In response, some are investing in self-improvement to strengthen their sense of safety and resilience. In Guangzhou, Xiuying, 30, is focused on improving her skills. “I have a stable job with a fine salary, but now I think part of stability is making yourself resilient and irreplaceable,” she told us. “Through this pandemic, I feel the urge to improve my own skills for potential career changes.” Parag in Pune, India, agreed. “Spend money on something meaningful, on self-development,” he said. “Learn something new with that money.”
One distinction we’ve noticed among those we interviewed was their level of confidence in their government’s ability to provide unemployment benefits. In areas where that confidence is low, people are also considering ways to diversify their income streams: setting up, or doubling down on, existing online businesses or taking on additional part-time work.
Despite all this, there are indications that as countries reopen we could see temporary spikes in spending in certain categories, such as travel. People said they plan to travel locally first to see family and friends again, and after that, to take vacations farther afield. This sentiment was strongest in countries in the lead on the path to the next normal, such as China. “I’ll indulge in spending for all my missed entertainment,” Jun in Shanghai told us, “such as travel, karaoke, and movies with friends.”
Spending in general, behavioral research suggests, is likely to be one way that people choose to express a sense of control over their lives as we emerge from the crisis. Work by behavioral scientists at Rutgers University, for instance, has revealed that “stress leads consumers to save money in general but spend strategically on products that they perceive as necessities.”
In the near term, business leaders need to confront a big question: How will their offerings deliver value in new ways that empathize with the newly careful consumer? One way, an article the Harvard Business Review suggests, might be to measure people’s emotional responses to the crisis, as well as the way they prioritize purchasing decisions, and then approach the different segments of their market accordingly. Another is to prioritize customer experience as a differentiator, as consumers are more judicious with their spending.
Thinking in the longer term, another question for leaders arises: Could we see a sustained decline in consumer confidence and a spike in savings rates? What we’re hearing certainly suggests it’s a strong possibility—and a trend likely to endure for some time. The transition to quarantine life may have been rapid and shocking, but the emergence from it will likely be slow and cautious, with the next normal looming on the horizon.
Thanks for reading. For more stories about how this crisis is shaping the way we live and work, please check out The New Possible collection page. Have your own story to share? Email us at new_possible@mckinsey.com.