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Paying the price? Financial inequalities in the aftermath of the pandemic

By James Yarde on June 12th, 2023.

COSMO researcher, James Yarde, unpacks the findings from our research into the financial impacts of the pandemic.

Among comparable economies, the UK ranked among the most severely affected by the COVID-19 pandemic. Just as for other countries, major disruption to global supply chains, and large-scale changes to working patterns – due to lockdown restrictions – were among the key factors contributing to the downturn.

The UK government undertook a wide range of large-scale interventions in the economy in an attempt to mitigate the very worst of the economic effects of the pandemic, with a view to facilitating a post-lockdown bounce-back. But even with major economic measures - such as furlough - in place, new findings from the COSMO study last month suggest that the economic reverberations were felt by many families across the UK. This is especially important in the context of the ongoing cost of living crisis, as there is a danger that the financial strain that families were exposed to during the pandemic will now spiral, further entrenching inequalities.

Household finances and the pandemic

For many, the pandemic brought about changes to household finances. Across the families that we spoke to as part of the COSMO study, almost two in five (39%) felt that they were left financially worse off compared to before pandemic. Furthermore, there was a clear socio-economic dimension to this. We find that the worst off – including those from the most disadvantaged neighbourhoods, and/or living in social housing – are among the most likely to report that their finances had declined during this period.

Parents were also asked, thinking about their current financial status, how well they felt they were managing financially. Those families finding it most difficult were primarily composed of those who were worse off compared to before the pandemic, with 79% of parents reporting as such (see Figure 1). And, while the economic impacts of the COVID-19 pandemic were of course felt across society, over three quarters (76%) of those who described themselves as either ‘living comfortably’ or ‘doing alright’ said that their finances had either stayed the same or got better since March 2020.

Figure 1: Ability to manage financially, by self-reported change in finances during pandemic period

Notes: N=7,614. Analysis is weighted for survey design and young person and main parent non-response.

Day-to-day, those who reported finding things difficult financially were less likely to be able to meet their core costs of living. Not only were household members more likely to face hunger, they were also more likely to be in arrears on their housing payments. Around one in seven households (14%) indicated some level of food insecurity referred to in the COSMO survey. In 5% of all households, someone had gone without eating for a full day because of a lack of money or resources. Across all parents, just under one in ten (8%) had used a food bank since the beginning of the pandemic in March 2020, with almost three quarters also having needed longer term food bank support. Those who have experienced food insecurity (such as skipping meals, or going hungry due to the cost of food) were also more likely to resort to support from community-based organisations, such as food banks.

Education outcomes

In terms of both GCSE attainment and young people’s own perceptions of whether they have fallen behind their classmates, the evidence from the COSMO study suggests that aspects of household finances are closely linked with these. Young people from households finding it ‘very difficult’ to get by were over twice as likely feel like they had fallen behind (51%) compared to those from households that were ‘living comfortably’ (24%).

Figure 2: Whether participants thought they had fallen behind their classmates, by how well parents feel they are managing financially

Notes: N = 7,772. The analysis is weighted for survey design and young person and main parent non-response.

A similar pattern by symptoms of financial stress was also reflected in terms of GCSE realised attainment. Even when taking into account other background characteristics – such as student demographics and prior attainment – we estimate that young people living in households which are long-term food bank users dropped approximately half a grade, on average, across their top 8 GCSEs. This  therefore suggests that young people whose families faced significant financial challenges during the pandemic have dropped further behind their better off peers.

Mental health

Links between household finances and outcomes were not confined to education. Similarly to the findings around education outcomes, financial hardships experienced during and after the pandemic were also found to be strongly associated with mental health – for young people and parents alike. Those in households that are living most comfortably were significantly less likely to report high levels of psychological distress than those finding things most difficult. The pattern for parents is even more pronounced than for the young people in the COSMO cohort (see Figure 3). Parents living in the most challenging financial circumstances were around four times as likely to indicate psychological distress (82% compared to 19%), while for young people the difference is estimated to be just over ten percentage points (53% compared to 40%).

As we identified in the COSMO briefing on Mental Health and Wellbeing, the overall prevalence of psychological distress among the COSMO cohort is gravely concerning. But, while there is some evidence here to suggest that concerns about household finances may be linked, for young people other factors such as gender and experiencing adverse life events seem to play a more predominant role in this. For parents, however, there is a larger gulf in the mental health by financial circumstance. Given the current cost of living crisis, there is a danger that psychological distress will become yet more prevalent among the worst off.

Figure 3: Percentage of young people and parents reporting high psychological distress, by how well parents feel they are managing financially

Notes: N = 7,543. The analysis is weighted for survey design and young person and main parent non-response. Only households where we have GHQ data for both the young person and a parent are included.

Policy implications and future research

Evidence from the Financial Inequalities and the Pandemic briefing confirms that financial hardships experienced during the pandemic are closely associated with key outcomes related to education and mental health. As the COSMO study progresses, we will be able to shed light on how experiences in the pandemic relate to longer term outcomes – be this experiences of traditional exams for different groups, or how patterns around mental health and wellbeing change over time.

For the time being, we can see that hunger, in particular, has touched many young people’s lives. This is evident in terms of the number living in households that have experienced food insecurity, as well as the negative link we found between long-term food bank users and young people’s GCSE attainment. Hunger is, however, not confined to just those that are eligible for Free School Meals and, indeed, eligibility for this support has not kept pace with need. One way to begin to address this is through expanding the eligibility for FSM, beginning with all young people from households in receipt of Universal Credit.

Longer term, the challenge for those from disadvantaged backgrounds goes beyond just attainment. Not only are those who experienced financial challenges during the pandemic more likely to have received lower Teacher Assessed Grades at GCSE, but their circumstances may have also put university out of reach due to affordability (or lack thereof). Both attainment and the cost of study must therefore be key considerations for policymakers and universities alike. Else we risk that those from disadvantaged backgrounds will not have access to the same opportunities as others as a result of specific challenges faced during the pandemic and in the subsequent cost of living crisis.