Roos van Rongen (32) gets a pain in her neck when she talks about the state of the economy. It brings back memories of a difficult time. After the credit crisis of 2008, everything went wrong in her family. Her father, the breadwinner as director of a design agency, lost his job. Her parents got divorced and wanted to sell their house, but it was on the market for years and was eventually sold for only half its value. They were left with a “sky-high debt”, which has only now been paid off. “Life was not as easy as it used to be,” she says. “In hindsight, we were left with a trauma.”
Money is still a major stress factor in her life, even though she earns enough as an environmental manager on behalf of the municipality of Amsterdam to make ends meet. “I always have the irrational fear that I will run out of money,” she says. That fear intensifies now that she keeps hearing and notices that an economic crisis is coming. She is constantly comparing the current crisis with the previous one. When the stress increases, she worries, sleeps badly and has pain in her body.
The news coverage of the current state of the economy is not exactly encouraging. A recession is probably on the way, inflation is at an all-time high, everyone is talking about crisis: what does that do to people’s psyche? And how overwhelming is it if this is the first economic crisis that you consciously experience? NRC spoke to behavioral economists and experts by experience about what an economic crisis does to people.
Van Rongen does not want to go through the same thing again as last time, so she wants to prepare for what is to come by making “good decisions” now. To save money, she lives, among other things, temporarily in her father’s house, where she does not pay rent. She also wonders whether she should opt for a more stable job instead of consultancy. “Although I really enjoy my job and it is varied and I earn enough, I sometimes consider choosing a job where my income is even more stable.”
Preparing for a crisis by making ‘good decisions’, as Van Rongen does, is a well-known mechanism, says behavioral economist Robert Dur of the Erasmus University in Rotterdam (EUR). “This feels like the time to think about how you can strengthen your situation, for example by looking for security in a contract instead of freelancing.”
According to professor of behavioral economics Joep Sonnemans of the University of Amsterdam, the first reaction of people in an economic crisis is to cut costs ‘locally’: where they hear that prices have risen sharply. For example, they hear that products in the supermarket are becoming more expensive, so they spend less on groceries. “That is not always the best solution,” says Sonnemans.
The behavioral economist recently heard that someone had decided to shower less often. “I asked if he knew how much a shower costs. That is between half a euro and a euro at a time.” That person could also look more broadly at how he can save costs. If he would take sandwiches with him once a week instead of getting a sandwich in the work canteen, he could ‘have a nice shower’ all week.
When it turns out that cutting expenses doesn’t work, according to Sonnemans, people are also inclined to look at their income as a second reaction. “They are going to see if they can perhaps earn more income by working more.”
However, an economic crisis can lead to pessimism, thinks Sonnemans. “People tend to draw lines. When it goes well, we think it will go well forever. If the economy goes bad, we assume that it will never get better.”
Money stress has about the same effect as a night without sleep
According to behavioral economist Eva van den Broek, affiliated with Utrecht University and working for Behavioral Insights, a consultancy for companies and governments, people overestimate the impact of major events on their lives. “We get used to a new – lesser – situation faster than we expect.” In the end, life goes on, people will see.
But before people with financial stress become accustomed to the new economic situation, mental health can deteriorate, says Van den Broek. “Especially people with a lower income more often seek medical or mental help after a crisis.” Moreover, the temporary stress can also have long-term consequences for physical health: for example, people get higher blood pressure or lower resistance. “Money stress has about the same effect as a night without sleep.”
And during an economic crisis, more people suffer from money stress, says Wilco van Dijk, professor of economic psychology at Leiden University. “They lack money and feel they have no control over their finances.” According to Van Dijk, that stress is fed during a crisis by things that are difficult to predict and that you cannot do anything about, such as how high the energy bill will turn out, or how long the war in Ukraine will last.
This can have emotional consequences such as anxiety, depression or anger outbursts. It can drive some to despair: “Studies show that there is a link between economic recessions and suicides – especially in countries with a weak social safety net,” says EUR’s Dur. “An economic crisis also means a mental health crisis.”
Financial stress can also cause cognitive problems. Van Dijk of Leiden University: “People start worrying because they are worried. That fills the head and therefore there is less room for other things.” This makes them less able to concentrate. It is also becoming increasingly difficult to plan. You lose sight of the long term and end up in tunnel vision, which means that you, for example, reduce the monthly amount of your energy bill and get into trouble at the end of the year, because you still have to pay extra.
The sisters Monique Arifi Bonsink (57) and Tonia Bonsink (72) can still remember the crisis of 2008, although they were not personally affected by it. “The real pain then seemed to lie mainly with people who had a lot of money in the bank,” says Monique. At the time, the crisis mainly affected the financial sector and the housing market. Now people are “really affected by their basic needs”, says Monique – after all, everyone is losing purchasing power. “Messages, energy. Everything is more expensive,” says Tonia. They feel restless.
The two are very concerned about the youth. They have never consciously experienced such economic setbacks before. But they have already suffered significant “mental damage” due to corona, they see. “I am afraid that an entire generation will be traumatized,” says Monique.
Van Dijk thinks it doesn’t matter much whether this is your first, second or third crisis. “The credit crisis in 2008 affected a specific group. A lot of people didn’t feel it in their wallets at the time,” he says. “Now everyone has less to spend. If you can’t make ends meet, it’s very annoying, even if you’ve experienced that before.”
Dur thinks that the current reports about a possible recession are especially frightening for young people. “It is all still uncertain, so indeterminate. But you do feel dark clouds gathering, which you may not have experienced before.” According to him, economic conditions have a “lifelong effect” on young people between the ages of 18 and 25. “In those years, all the big events make a big impression.” For example, someone who experiences an economic crisis at that age often becomes a lot more left-wing in terms of income redistribution. “People show more compassion for others who are less fortunate.”
Roos van Rongen, whose father lost his job in the crisis of 2008, notices that she is much more concerned with the economy than her friends, who were not so aware of the crisis of 2008. Six months ago she already asked her friends if they thought the groceries were so expensive and how they dealt with it. They didn’t seem to care about anything.
The crisis in 2008 did not have much influence on Roel van den Burght (26), an artificial intelligence student at the University of Amsterdam. He now notices that he is getting a bit nervous about the negative reports about the economy. “I read the newspaper, I sometimes have a bad feeling about it.” But he is not yet awake with worries about a future recession. “I’m kind of sticking my head in the sand.”
Even if a crisis and the associated financial stress last longer, people will show ostrich behavior, says Van Dijk. “Those who feel powerless will eventually stop opening the envelopes with bills. It makes no sense, is the thought.” In this way, the problems often only increase and the stress lasts longer. The longer the stress lasts and the more intense the stress is experienced, the lower the self-esteem.
After the first phase of unrest, in which a certain tension occurs throughout society, part of the people will find resignation again. “If it turns out that the personal consequences are not too bad,” says Dur. But those who lose their job, for example, can also experience permanent loss of well-being, says Dur. “Job loss is one of the most drastic events, with a major effect on people’s well-being. A loved one who dies causes a deep shock, but after that the well-being eventually returns to the old level. Someone who loses his job and then does not return well to the labor market, often remains unhappy.”
It shows how important it is for people to have work, says Dur. “If we lose that, we feel sidelined.” He expects a diminished sense of well-being in society if a recession is indeed coming and more people will lose their jobs. “Now the labor market is tight, but that can easily change in a recession.”
Economist Sonnemans thinks that people in this crisis have so far experienced less fear because there is mainly a purchasing power crisis, rather than an unemployment crisis. “We have less money than we are used to. But unemployment is still very low.” According to Sonnemans, it is much more drastic to live with the fear of losing your job than to have to cut back on expenses.
Monique and Tonia Bonsink are paying more and more attention to their expenses. Spontaneous bargains are no longer there. For now it’s still going. But they have the feeling that things could get a lot worse. “Minister Sigrid Kaag has said that the support packages will come to an end. That really gives a feeling of fear,” says Tonia. Monique: “I constantly feel a dark cloud hanging.”
A version of this article also appeared in the newspaper of November 26, 2022