Since time immemorial, the existence of financial crises has had profound effects on the overall economy. In particular, consumption of individuals has been the most affected during times of such crises. My 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. The need for research on the lowest level of household consumption arises due to the different reactions of the respective families to the respective crisis. There arises a question as to whether individuals would prefer to deposit their funds into a savings account or continue to spend their respective disposable incomes. In the ensuing study, the paper will make the principal claim that culture is the principal determinant of consumer behavior during times of crisis. Moving to sub-claims, it will similarly make the case, after data analysis that some cultural baselines are better adapted than others to deal with a crisis. Within the warrant that this cultural determinism matters if governments are to be able to mitigate the dangers of these crises, the paper will thus conclude by noting that understanding the culturally-determined nature of micro-level consumer behaviors is crucial. Additionally, the paper looks into the repercussions of the financial crisis on consumers from the developed countries and investigates the perception of the problem and whether their consumption has changed; as a result.
In this perspective, the core feature of this project will thus be a primary source-based examination of the varying ways in which America, British and Japanese consumers dealt with the financial crisis that began in 2008. Subsequent to the elaboration of a theoretical framework which will outline why culture is so important to understand consumer behavior in recessions and economic crises, the paper will move forward to examine the specific and varying forms of behavior utilized by members of different groups in getting through these crises. If the citizens do not spend, the economies may have a hard time recovering from the crisis. In retrospective, the consumer is the most elemental basis for any business organization, and the wider economy. Consequently, their core behavior is also of great importance and significance for a successful marketing experience.
Nevertheless, consumer purchasing power could vary severely and has a very intricate trend. Consumer buying behavior has been attracting the studies and interests of a greater amount of commercial and academic faction for a; long time. The level of intricacy of the process where the consumer buying could derive a relationship from could have made the trend difficult to be predicted and managed. However, consumer buying behavior has been found out to be a factor of other varying variables. These variables tend to have an impact on the overall outcome of consumer’s consumption. One of these variables is that of culture. As such, this paper argues that culture is an important variable germane to understanding variations in consumer behavior. Generally, culture can be defined as the natural elements that define how individuals live or behave. The fact that culture acts as a code through which individuals live by provides an avenue through which individuals’ decision on consumptions are attached. People from different cultural backgrounds tend to have differing consumption patterns. As such, in times of a financial crisis, different individuals would react differently; with regards to consumption.
Accordingly, culture plays a dominant role; as a framework through which we can understand the variations in micro-level individual behaviors which emerge from economic crises. With this in mind, another important element in understanding the importance of culture in the new world of finance, and thus as a predictor of responses to economic downturns, lies in the occurrence of globalization. Because globalization has brought new centers of economic power, in Asia and the Middle-East, to the forefront of the world economy, it has created a new context in which a wider range of cultures influence the international economy. With this, the paper proposes that, in seeking to understand the way that different consumers use their cultures to react to financial crises, culture is a predominant variable in the respective reaction of individuals to financial crises. The significance of this variable is derived from the fact that people from different cultures would react by either saving, consuming their disposable income, or cutting on their excess consumption.
An epitome of the cultural effects on consumption during a financial crisis can be illustrated using distinct cultures. In the case of the Chinese, they work hard during their youth so as to save for old age. Culturally, individuals who save more for their old age gain respect for their community. In retrospective, if one fails to save for the future, they end up being considered as outcasts by their communities. Additionally, the old get little or no help at all from the society or government. An individual is assumed to take care of their future life in the present. All this saving is done without consideration of the Paradox of thrift. According to this economic concept, the more individuals strive to save, the less they end up saving. Culturally, the future life of an individual is an individual decision. This results to many individuals consuming minimally in the present while saving more and more of their disposable income. Thus, in the case of a financial crisis, the Chinese would prefer to save more; as opposed to consuming their disposable income. This is derived from the fact that the respective culture places more emphasis in the long run; as opposed to short term survival. The prudent approach for this culture would to reduce and change their consumption habits. They would prefer to consumer just enough to satiate their lives; as opposed to their hearts.
On the other hand, an individual from the United States would react in an entirely opposite way. At the onset of a financial crisis, individuals would prefer to consume their savings and the resultant disposable income. This is derived from the fact that, culturally, the present matters more than the future.
Additionally, it is considered prudent that one invests in the future while they live strenuously in the present. As such, what matters is the current lifestyle of an individual. However, this should not be taken to dismiss the fact that the culture dissuades against saving. The fact is that the culture advocates for a balance between savings, investment, and consumption. In this scenario, individuals would be predominantly strive to continue their current consumption trend. Few or none of the individuals would respond to a financial crisis by reducing their consumption. On the contrary, individuals would strive to stay on the same level of consumption by sourcing out for additional income. As witnessed in the previous financial crisis, America was amongst the countries worst hit by the financial crisis. However, the Chinese economy faced minimal negativity impact from the crisis. In fact, the Chinese economy played a big role in the uplifting of other world economies that were hit by the financial crisis.
While there is already significant evidence that different types of consumers modify their consumption patterns differently during times of recession and crisis, with some of it having even been conducted at the micro level, not all of this research is culture-related. For example, some of the early research on this subject has focused on age, and proximity to retirement. In this vein, one recent study had made use of formal modeling techniques to find that, when individuals are near-retirement, consumption during periods of recession is significantly reduced. In contrast, however, younger income earners do not significantly modify their consumption patterns within such contexts. This said, other studies have indeed focused on the culturally-contingent consumption patterns that emerge from recession. From such research, the varying response of individuals to financial strains has been captured. On the part of the young in the society, their respective reaction has been found to deviate from the norm. According to a research by The Red Cross Society, the after effects of the 2007-2008 financial crisis had a huge impact on the youth. The research stipulates that failure for the youth to access some basic amenities like health or even access to strained schooling led to the inception of varying issues. This results to a rise of cases of social tensions and strains.
Additionally, in times of a financial crisis, the young people feel the pinch of a financial crisis before older individuals. This revolves on the fact that firms, with no other option, prefer to let go the young people first. This leads to an increase in the overall joblessness; in the economy. Firms would prefer to let the youth on the basis that they have minimal experience compare to their older counterparts. Also, the smooth transition of schooling and the job market is disrupted. Additional individuals who graduate from school are faced with a prospect of jobless as they leave school. This leads to a case where the labor market is flooded with potential workers, but the state of the economy does not provide for the absorption of a majority of the idle labor. Generally, there cannot exist a situation where there is total employment in the economy. Additionally, other aspects have to be taken into consideration on the aspect of employment. One such pertinent issue is that of inflation.
In the case of inflation, Phillip’s curve sheds more light on the issue. Additionally, the curve can be said expound on the issue of youth, unemployment, and inflation. According to the curve, there exists an inverse relationship between inflation and unemployment. Lower levels of inflation would be related to high levels of unemployment. This scenario arises on the basis that there arises a situation where low amounts of money supply exist in exchange for higher levels of commodities. The vice versa also happens to be true; in relation to high levels of employment. Thus, existent of a financial crisis would lead to an overall increase in unemployment. This would result to reduction in the level of the overall inflation; in the economy. On the contrary, the older individuals would be cushioned as they have an income streaming from their employment. In the case of the young, termination of employment would leave them exposed to suffering. This has been resultant from a culture that emphasizes more on the experience of individuals in the work place in times of financial crises. From the statistics reflecting the levels of unemployment in the recent financial crisis, culturally, no matter the level of expertise of an individual age plays a huge factor; in relation to employment. A majority of those let go from their jobs were young individuals bearing the required expertise.
In a study, Aron et al. built a model, incorporating expectations for income growth, housing collateral, income uncertainty and myriad other variables, to examine the proclivities of America, British, and Japanese consumers during periods of recession and crisis. Findings that Japanese consumers displayed more conservative consumer tendencies during crises than British or American ones, bring out aspects of cultural norms. The authors thus argue that national culture and its economic corollaries play a strong role in determining consumer behavior . Generally, national cultures refer to the overall expected norms in a society. This has been expounded in the case of the Chinese. China’s overall national culture puts more emphasis on saving for the future. As such, an individual from that culture would be more prudent in their consumption; as opposed to individuals from other cultures.
On the similar point, most communities in Asian countries have their cultures dictate how they spend their resources as well as consumer behaviors. According to the Indians, the sub division of cultures plays a role in determining how much an individual spends at whatever time. The subdivision into caste system is an important factor, which influences some other sub-cultures more, so those in the upper caste system spends lavishly; whereas those in the lower caste cautions their spending. During the economic turmoil, most of the Indians will be cautious in spending as they will not have enough and has to use the little resources they have in masking their ends meet. However, there would exist an overall difference between the consumption levels amongst the various subdivisions. This is derived from the fact that the consumption of individuals in the lower levels would still be lower compared to that of those individuals in the higher castes.
Subsequent to the development of an economic model to illustrate this fact, this paper will then seek to re-link these findings to the macro level so as to aid in the development of culturally-contingent and culturally-competent macroeconomic policies that governments can use so as to negotiate these crises. Generally, macro level refers to an aggregate value in an economy. For example, looking at national cultures, employment, and inflation bring out elements of macro analysis. As such, macro deals with a compound of factors. At the baseline level, this is justified by the fact that, as the world becomes more globalized, looking at the multiple atomistic parts that make up its economy becomes a less fruitful exercise. Rather, in such a context, it becomes important to look at interlinking and moving parts, all predicated upon different cultures, so as to build policies that are both germane to resolving the crisis, and in line with cultural baselines. Amongst the important cogs in the cultural debate include those pertaining to age, gender and overall beliefs. Different economies have different overall beliefs. As such, it would be wise to take into consideration the overall presumptions before the inception of blanket policies.
Society is made of people from different demographic parameters, and they all have their places in the community. For example, the United States’ population bears individuals from all over the world. If one culture embraces savings while the other prefers spending and investments, then, these cultures can survive together. Through the use of intermediaries, banks, the saving oriented individuals can give their savings to the consuming inclined individuals; at a rate. The societal structures become balanced when every structure is occupied, and the absence of any social group in the society brings imbalance, which needs attention, in the long run. Similarly, people hold different positions in the society, which also dictates how much they earn as those in the upper ladder earns more than those in lower. Because of this, those individuals in the lower ladder who earn small incomes change their spending strategy to fit into the tough economic situations, which they experience. On the other hand, those in the upper ladder will continuously spend lavishly as their social status dictates. These factors are determined by culture as consumer behaviors depends on the social class one occupies in the society. Individuals with higher status and power enjoy the benefits and are less cautious of the overall economic situation.
With this, the task of students and scholars of financial crises, and of the appropriate responses to them, becomes deeply intertwined with understanding how culture impacts both national and household-level responses to these economic shocks. Categorically, culture sufficiently affects the general consumption in an economy. As such, understanding of varying cultures acts as an avenue through which economies can strive in times of financial crises. Additionally, this understanding of cultural impacts provides a way through which financial crisis resolutions can be coined. While traditional economic models have focused almost solely on the notion of homo economicus, and the notion that humans are nothing more than rational utility-maximizing actors, the literature has made it clear that human economic behavior and rationality itself are both culturally-contingent phenomena. According to Aalbers, individual consumption behaviors are governed by more than the mere need of maximizing utility subject to the available resources. As such, satisfaction is derived from more than one front. Thus, consuming the bundle with the most goods does not guarantee that one will be ultimately satisfied. Rationality and expected human behavior would expect that an individual choose a bundle that bears more goods and comes at a cheaper price; regardless of price. However, aspects of culture guide in new concepts of understanding consumer behavior. For example, individuals from developing economies prefer current consumption. This is because their culture revolves more on survival; as opposed to long run development. In this scenario, for a developing economy, it would be ration to invest in capital consumption, but culture deviates from economic norm.
With this, figuring out how to manage crisis optimally requires that we also figure out how different cultural baselines impact recession and crisis-based behavior. This would require the accurate prediction of the different individuals in an economy. From the results, then the expected resolutions can be modeled in a manner that reduces the overall impact of a financial crisis. Given the evidence that many consumers engage in changing patterns of behavior during crises and that culture is likely to even further modify these behaviors given that most economic studies are derived from the dominant White middle-class nature of the international economy, the addition of culture to these models is necessary. This would enable the models to be considered as full on the basis that they would take into consideration a never before considered side of human behavior. As proven, humanity prefers to be considered as being of a given identity. In this perspective, the respective identity breaks down to that of culture. Additionally, varying research has shown that there is more to culture and identity, in consumer behavior, than it was previously thought. The inculcated culture of an individual would result to them behaving differently in times of financial crises.
On the front of solutions, optimally setting national economic policies requires that governments understand how their national cultures affect consumer-level micro-economic behavior during crises. An epitome of this would be that of savings and lending policies. The policies should be in such a way that they allow for easier saving and lending in an economy. For example, according to Muslim culture, their do not take interest from their savings. On the contrary, their saving institutions are minimal in number. This means that individuals willing to save have no avenue through which they can channel their fund. This means that a lot of funds that can go a long way in easing the pressure on individuals of other cultures are wasted. As such, policies should be developed that allows for ease in circulation of funds from communities that are saving oriented to those that are investment oriented. As such, the overall circulation of money would provide a stable economy; even in times of a financial crisis.
In the case of youth and employment, stringent measures should be put in place to avoid retrenching individuals on the basis of their age. This amounts to discrimination on the basis of age. Additionally, despite the fact that older individuals have the prerequisite experience, it is the young individuals who have the required energy. Thus, policies aimed at ensuring the youth keep their jobs are essential during times of a financial crisis. Additionally, governments should set up policies that are in tandem with the objective of reducing inflation. This is derived from the fact that erosion of a country’s currency would result into a reduction of consumer consumption levels. This is derived from the fact that the existent currency cannot be able to sustain previous consumption levels. This would mean that individuals, using their savings and disposable incomes, get lesser goods for more money.
However, the consideration of culture as a major influencer of consumers’ consumption should not be considered as the ultimate variable in making decisions. This is derived from the fact that varying there exist individuals lacking definite culture. For example, in the case of individuals of a certain cultural origin but born in new cultures would view issues differently. An epitome of this is that of Africans born in the United States. Their culture, to some extent, can be considered as a hybrid culture that utilizes more than one norm. As such, it would be insufficient to argue that their culture would be an ultimate variable in their consumption patterns. Additionally, with globalization, culture has come to be intertwined to the extent that the world is becoming a global village. In this sense, the world cultures are influencing each other in an endeavor of creating a single, universal culture.
Thus, as time continues the impact of culture on consumer consumption would diminish. Other variables like rationality and economic behavior would tend to take over in the newly harmonized world. Another aspect that would impact the issue of culture could be that of changing lifestyles. In a developmental oriented world, people are more indulged in engaging in insurance and pensions schemes. This would mean that individuals whose cultures are bent on saving would engage in insuring and pension schemes. However, this is not to mean that country’s cultures would be eliminated. As such, culture would play a part in consumers’ consumption, but not the predominant part it plays in the present.
Additionally, the definition of culture creates a conflict in an economic sense. In particular, the definition of culture encompasses aspects that have minimal or no impact on consumers’ consumption. As such, there exist a need for streamlining the definition of culture to incorporate an ‘economic’ definition that can aid in research and policies consumer consumption. An economic definition would take into consideration cultural norms that have an impact, directly and indirectly, on the economic behavior of individuals. As such, economists can accurately arrive on the part that culture influences consumption behavior at a micro-level. However, this should not be taken as a dismissal of the overall role of cultural norms.
In a nutshell, culture is an important component in consumer consumption. From understanding culturally forbidden consumption to consumption patterns in times of crises, authorities can be able to coin policies that are in tandem with alleviating individual needs. The recent 2007/2008 financial crisis managed to shed more light on to the issue of culture and consumption. This is derived from the fact that countries with different consumption patterns faced differing effects of the financial crisis. Countries with saving oriented cultures emerged to save those with consumption oriented philosophies. As such, it is of the essence that future polices take this issues into consideration. Additionally, given that the rising income levels mean that far more countries are now affected by financial crises, this understanding is crucial if states are to make their ways out of these crises as rapidly and optimally as possible.
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