Special Report: Life after Lehmans - Part I - Consumers really are different animals
Three years on from the start of the credit crunch, how should we remember – and, indeed, judge – the behaviour of consumers during the unfolding crisis? Did they contribute to the chaos by responding irrationally? Were they merely victims? Could they have done more to help or could more have been done to help them? Ultimately, were they short-sighted or short-changed – or a bit of both?
The run on banks was a defining moment of the crunch, the nascent sense of panic manifested in the distinctly British art of queuing.
How rational – or mad – were those customers in wanting to move their money? Quite rational in withdrawing their cash from a bank seen to be in trouble – that is, if they had more than a certain amount (protected in the UK) with the bank. Even with less than the protected amount, not really so daft, as it’s easy to move money and one never knows when to believe assurances.
The fact is those queues, that panic, spoke volumes for an enduring quirk in how the world of economics views consumers.
It has long been supposed that consumers are something akin to hyper-rational calculating machines. They are not.
They’re human – even if they frequently are not treated as such. Consumers are gullible. They’re vulnerable. They can be fiercely loyal one minute and thoroughly disloyal the next. They can be soft touches. They can be panic-stricken.
Ordinarily, a bank’s customers may act through a combination of emotion, unwillingness to use their time checking their finances and, in some cases, insufficient basic financial knowledge. Let’s start with the emotional side.
Coutts & Co has occasional purges, via increased current account charges, to rid itself of relatively poorer customers without unduly offending.
The old minimum in a current account is now insufficient to avoid charges, and much more money is now required with them elsewhere to do so. The previous £10,000 minimum for a current account was aimed at removing people without serious money, but, with interest rates so low, it’s not crazy to let that pass. Then the unavoidable account charge (£600 a year, payable quarterly) for a nice diary and splendid cheques is too much, especially with cheques on the way out.
In conclusion, some people will pay for a differentiated service – and they may also be lazy – but with limits. In other words, loyalty is a two-way street. This became ever more apparent as the credit crisis worsened, leaving more and more consumers understandably disenchanted, if not disgusted, with what they perceived as the careless, self-serving, ivory-tower mentality of those trusted with safeguarding their money.
A recent survey cites “poor service levels” as one of the main reasons why consumers are less trusting than a year ago. In the financial world, “poor service levels” often equates to “lack of clarity”.
A case in point. Two years ago I bought a superb new car for cash. Waste of money financially, but at my age it’s worth it – it even brakes and accelerates for me. So there I am, trying to pay, but the salesman is trying to persuade me truly wealthy people never pay cash but instead use financing. I think he wanted me to pay more so as to feel richer.