Stretched thin; price elasticity
Economics plus lots of money links, and a newsletter that's about 12 hours behind schedule. Apologies.
I pay a lot for my gym. And from next year, it’s increasing by £17 a month. That’s an additional £204 a year, which is insane.
It got me to thinking about how much price changes affect our consumption choices.
In economics, there’s a concept called the price elasticity of demand. It means that buyers of different good and services have different levels of sensitivity to the price.
Something like petrol is relatively inelastic - it’s a necessity. However, for someone who requires their car for work, it’s very inelastic; no matter what the price increase, they will still fill up their car the same amount. But if someone uses their car less frequently and for social purposes only, it will be more elastic — they might choose to walk or take public transport instead of their car, and forgo any long trips and, instead, stay closer to home.
Something like a wildly expensive gym membership will have different levels of elasticity for different people:
Someone who is already pushing their budget to its limits and finding it hard to find the time to go enough times a week could handle a £5-£10 monthly increase, but £17 will cause them to drop off.
Someone with similar budgetary challenges but who loves going to this gym will find the money elsewhere (perhaps they go on holiday less next year) and, even though the price hike is steep, and causes a significant impact on their life, their demand will remain inelastic.
Nowadays it seems that the price of everything is going up, so we’ve been forced to become relatively price insensitive. Prices that go up during periods of higher inflation don’t drop back down when inflation slows down.
Particularly when there are fewer competitors available for what we’re looking for (think Netflix’s own programming - you can’t get the same content on Amazon Prime, Disney+ etc). So they can afford to raise prices more than incrementally and not risk losing too many customers.
At the same time, price isn’t the only thing we factor into our decision making. It’s our preferences and, sometimes, our values. Although I think that while budgets are becoming increasingly strained, our values are more malleable.
For example, we know that buying from Temu or Shein is bad for the people making the stuff, for the planet generally, and for us, as we accumulate more stuff. But these businesses are thriving. News came out this week that Amazon is launching a Temu alternative called ‘Amazon Haul.’ Unsurprisingly, the cheaper stuff is, the more people will want it.
Plus there’s just so much ease involved in spending. Friction is rarely an issue, which I think contributes to reduced price elasticity.
As we head into spending season, consider examining your own price sensitivity. Mindful spending has become an oft-overlooked behavior, contributing to more elastic prices. I'll be doing the same - just outside of the gym membership (for now).
1. The UK gender pay gap has widened for the first time since 2013
On Wednesday, it was Equal Pay Day; the day women effectively stop earning for the year compared to their male counterparts.
The gap between men's and women's earnings is 11.3%, up from 10.7% in 2023.
On average, every month, working women take home £631 less than men – that’s £7,572 over the year.
This is up from £574 per month last year (£6,888 over the year).
Two-thirds of the gender pay gap would still exist even if men and women worked exactly the same hours, in the same jobs, and were of the same age, ethnicity, and background.
!!!
2. Home insurance policies are becoming increasingly expensive, but there are several ways you can keep costs down
Increases in adverse weather instances (causing insurers to pay out more) is causing an increase in insurance premiums — and this is just going to continue.
So, how can you take steps to lower your premiums?
Combine your buildings and contents insurance and get them from the same insurer; insurers are likely to give you a discount for buying two policies from them.
Pay for your insurance annually rather than monthly
A more cost-effective way to pay, if you don’t want to pay the full amount, is to put it on an interest-free credit card and pay that off in monthly payments instead.
Upgrade your home security
Changing the lock to a five-lever mortice deadlock that conforms to British Standard 3621 — this is considered the most secure type of lock not just by insurers, but by police as well — can lower your premium)
Join a local Neighbourhood Watch scheme - when insurers recognise this and see that you’re part of the watch, it can typically reduce your premiums by 5%.
Check your policy and think about skipping the extras
E.g. accidental damage cover bumps premiums up by an average of 10%
Use your ‘no claims bonus’
A one-year no-claims bonus could cut your insurance by 10%, rising to as much as 50% if you have five years or more without claims
Increase your excess
If you’re happy to pay more if you do make a claim, your premiums will fall substantially. For example, putting your excess up to £400 from zero could reduce your premiums by around 25%.
3. Gen-Z adults are more likely than Millennials to have a five-year plan for their finances
This is based on answering a question about whether or not they have committed to any financial goals over the next five years:
59% of Gen Z-ers said they have made this commitment
Versus 40% of Millennials
Of course, the realities are far more complex than this. The headline implies that Millennials are lazier (which might be true!). But there are many other factors at play — such as experience of burnout, newer perspectives on life, having more (and more vague) financial goals,
For example, it’s easier to have the goal of buying your first home, than it is to think about upsizing, managing a family, caring for older relatives and figuring out where to go next in your career.
LINKS!
Black Friday? More like Black Fraud Day — as this discount period has been described as “prime time” for scammers. Around this festive period last year, people in the UK were scammed out of more than £11.5m. More than 16,000 reports of online shopping fraud were recorded between November 2023 and January 2024, with each victim losing £695 on average. Be careful out there!!
After more companies are issuing ‘return to the office’ mandates, employees are job hunting for more flexible opportunities. Two-thirds of recruiters have seen an increase in applicants looking for new jobs who are working at companies that are mandating five days a week in the office. And more applicants are turning down offers that do not include hybrid working. If you’re hiring, this is now a key way to attract (and retain) top talent.
Across the pond, the share of US workers who are “thriving” has fallen to a record low. This survey started in 2009 (post recession), so this being a ‘record low’ is impressive. That said, American employees are feeling more positive on average than workers around the world.
People who have switched jobs four or more times in the past 10 years have saved £15,000 more in their pension pots. These ‘job hoppers’ account for about 13% of the workforce, and benefit from multiple pension pots (with different investment strategies) and, as we know, switching jobs is one of the best ways to increase your income.
A third of bank transfer fraud victims ‘now avoid new ways of managing money.’ Fraud victims with characteristics which may make them more vulnerable (e.g. being on low incomes, or having disabilities) are particularly likely to have lost confidence in new money management methods. It doesn’t say what these ‘new money management methods’ are; I would assume things like trying new apps for money management, or switching to a newer bank.
PS. Sorry this is so late. I went to the expensive gym earlier, and then the day spiralled!
PPS. It’s the last Money Brunch of the year on Saturday. Join us?
Know someone who would enjoy this in their inbox on a Sunday morning-ish?