Introduction
The consumption tendency of developed societies changes when they experience a financial crisis. This paper discusses the consumption habits of developed societies during the period when they experience a financial crisis. The way that developed countries handle a crisis varies. While some nations may favor austerity measures, others may opt for more investments by the national government. It is of interest to me to analyze what takes place at the household level. Would families prefer to keep their funds in their savings account? Or would they continue spending their disposable income? If the citizens do not spend, the economies may have a hard time recovering from the crisis. It is relevant to look into how people react to fiscal emergencies in order to gain insights that will contribute to effective planning and formulation of national fiscal policies.
Review of Relevant Literature
Research about the financial crisis looked into the different aspects of the crisis. Connoly, Ellis provided a historical perspective by presenting a comparison of the present crisis with the past crises experienced in the United States. His analysis shows that financial innovations exposed the banks to risks. Many mortgage borrowers who actually could not pay higher interests that were imposed later were given access to loans. The government response was also predictable, similar to what has been done in the past. The difference with the current banking crises was its resulting economic crisis which affected not only the ten developed countries that were having banking crisis but all the other countries too. The economic downturn was global.
When people experience financial and economic shocks, they react by altering their consumption patterns, savings and investment decisions, as well as their work and retirement plans (Chai, et al. 23) Their data show that in households whose primary income earners are already near-retirement, consumption is reduced both in the short-term and in the long-term. For households with younger income earners, the dual crises do not have a major effect on work effort and on decisions pertaining to retirement.
Duca, Aron et al. focused on the experiences of the US, UK and Japan. They claim that existing conditions in the three countries show that credit availability has fluctuated significantly in the UK and the US since 1980 – but not in Japan. Data shows that in the UK and the US, down payment requirements loosened, and the innovation of the home equity loan made the home a more liquid source of wealth.
In the study of Kim, Yun, Mark Setterfield, and Yuan Mei (37), the authors developed a Keynesian theory of aggregate consumption spending. According to this theory, the debts of working households pile up because these are utilized for consumption that cannot be paid for by current income and the accumulated debt also results from lack of understanding or foresight regarding long-term consequences of such practice.
Relevance of the Study
It is relevant to look into how people react to fiscal emergencies in order to gain insights that will contribute to effective planning and formulation of national fiscal policies.
Methods
The first step would be to come up with a model for the study. This researcher will use data from existing sources from the US, UK, and Japan. National households expenditure surveys available from the three countries would be accessed. From these databases, the researcher will identify the variables that would be relevant to the study and undertake statistical analysis to generate information about relationships and correlations.
Conclusions
When societies experience economic shocks, their consumption habits are altered. This paper shows the way developed societies in the US, UK, and Japan react to financial and economic crisis. Cultural perspectives are also taken into consideration especially since there is variations in the way the Japanese society look at credit as compared with that of UK and the US.
Works Cited
Aron, J., Duca, J., Muellbauer, J., Murata, K., and Murphy, A. “Credit, Housing Collateral and Consumption: Evidence from the UK, Japan and the US.” Oxford University Department of Economics Discussion Paper Series, Number 487, May 2010. Web. Jan. 22, 2013.
Chai, Jingjing, et al. “Lifecycle Impacts of the Financial and Economic Crisis on Household Optimal Consumption, Portfolio Choice, and Labor Supply, Netspar Discussion Paper No. 06/2011-051. Social Science Research Network. Web. 22 Jan. 2013.
Connolly, Ellis. “Banking Crises and Economic Activity: Observations from Past Crises in Developed Countries.” Economic Papers 28.3 (2009): 206-216. Education Research Complete. Web. 22 Jan. 2013.
Kim, Yun, Mark Setterfield, and Yuan Mei. “Aggregate Consumption and Debt Accumulation: An Empirical Examination of US Household Behavior” (June 27, 2012). Trinity College Department of Economics Working Paper No. 12-04. Social Science Research Network. Web. 22 Jan. 2013
