Dollarama stock is up. Google searches for “drive-in movies”, “cheap things to do for fun”, and “freezers” are at an all-time high. Individuals are buying more instant noodles. It’s clear that as the economy changes, consumer behavior is changing along with it. But these impacts aren’t as unpredictable as they might seem. With each recession, researchers aim to detail and explain how consumers react to the downturn. And based on these analyses, we can see a clearer picture of what is to come with future recessions.
Consumer responses to recessions can be counterintuitive but can lead to personal growth. Recently, researchers built a framework for consumer responses to financial hardship based on previous recession research. Among all findings, they noticed a pattern of response during an economic downturn. As consumers experience financial restriction, they tend to demonstrate the following steps: “React, Cope, and Adapt”.1
Recessions impact consumers in multiple ways, whether it be their financial limitations, employment opportunities, or through supply chain breakdowns. Among recession research, there are four main perspectives for how economic restriction can impact individuals:
- Resource scarcity (limited access to money)
- Choice restriction (limited options)
- Social comparison (an individual’s ability to elevate their social status)
- Environmental uncertainty (the predictability of the economic environment)1
Individuals respond differently to each perspective. But in many cases, this reactive behavior results in favorable growth in the long term. Recessions are in no way good, but they might strengthen our behavior in unique ways — like shaping how businesses approach consumerism once the recession is over.
Money myopia: economic restriction causes an increased focus on finances
Consumers have a heightened sense of their access (or lack thereof) to money during recessions. Initially, most consumers react with an increased focus on the price of goods, ignoring quality or other details.2 This focus can be so intense that it even causes cognitive burden.3
There are long term behavioral benefits from these financial restrictions. In an attempt to lessen the burden of financial restriction, consumers more effectively use their resources. Consumers post-2008 recession were better at addressing opportunity costs and making decisions.1 Individuals who were exposed to financial restriction over a long period of time were so aware of monetary value that they were less susceptible to pricing tricks, hidden fees, and taxes. 1
Today, experts are predicting a similar movement among younger generations in the post-pandemic phase. They note this generation will be more enlightened with their spending — they will expect a higher return from purchases while also considering their social impact.4,5,15 The implications of this are crucial for a functioning economy.
How restricted options help creativity and happiness
“We want what we can’t have” — and in a recession, we want it even more. This familiar behavior even impacts those who aren’t experiencing financial restriction, yet feel restricted because they feel that they should prepare for a downturn.5 Once we notice our limitations, we intently focus and frustrate ourselves with them.
When faced with limited choices, consumers cope by savoring ordinary moments. Consumers shift their spending habits towards lower-cost goods that provide feelings of enjoyment or luxury. For example, in past downturns, women have consistently bought more lipstick.1 This behavior is occurring even today. Sales in clothing retail are decreasing, compared to their usual increase in years prior.8,9,10 Demand is shifting toward providing higher quality products in smaller sizes.7
Instead of purchasing plane tickets for exotic locations, consumers are spicing up their summers with more purchases of home party sprinklers and party leis.6 Consumers are looking for more frugal ways to enjoy ordinary moments, instead of spending money on goods like apparel. Our attempt for enjoyment will still prevail, but it may be more of a “bite-sized” fun than a true indulgence.