Understanding Household Finance through Better Measurement

To date there are no surveys in the UK (or other developed countries) that measure income, expenditure, assets and debts for the same households. These data limitations constrain our understanding of the dynamics of living standards. For example, expenditure surveys in the UK and other countries suggest that households with the lowest incomes spend as much as households with much higher incomes. It is however not known whether this pattern is the result of measurement error in expenditure or income or whether it reflects genuine borrowing or dissaving. Having data about the assets and debts of a household over time, in addition to income and expenditure, would enable analysts to resolve this puzzle. Understanding the spending, saving and borrowing of households is critical for assessing the sustainability of economic growth, including whether the current recovery is fuelled by unsustainable consumer spending. There are other similar unresolved puzzles. For example, in survey data richer households save larger proportions of their income, however aggregate savings rates have not increased over time as real incomes have increased. This discrepancy could again be due to measurement error or reflect true behaviours. A better understanding of household finances will allow a clearer picture of which households are disadvantaged, and how advantage and disadvantage cumulate across time and generations.

The reason why no existing survey collects data about all aspects of a household's finances is because it would take a very long questionnaire. This would be costly to conduct and burdensome for respondents. Through interdisciplinary collaboration between topic experts, survey methodologists and experts in commercial market research, we aim to develop methods of data collection that reduce costs and respondent burden, while maintaining or improving the quality of each data component. We will develop a web survey that will have at its core a reconciliation screen where respondents are asked to balance the totals of their income, expenditure, assets and debts. We will repeat this survey, to test the potential of boosting the reconciliation by incorporating information from the previous interview. To reduce the length of the survey we will assess ways of collecting components of household finances prior to the survey, using new technologies already routinely used in commercial market research. These data would be preloaded into the web questionnaire and incorporated into the reconciliation screen. We will explore the feasibility, data quality and costs of different potential technologies, including technologies that would reduce respondent burden by capturing data passively. For example, barcode scanners to collect detailed expenditure data, coding of till receipts, linking to store card data, or asking survey respondents to sign up to a "financial aggregator" service and relaying the data to us. To help respondents provide more accurate reports in the web survey we will also assess the potential for in-the-moment surveys triggered at salient dates such as the deadline for self-assessment tax returns or tax credit renewals, when sub-groups of respondents will have better knowledge of their income, and the potential for using elements of 'gamification' to increase respondent engagement with the survey and reduce burden. We will assess the quality of data obtained with different methods by examining the balance of the household accounting identity and the quality of individual components. To inform the development work and methodological tests we will carry out experiments in an existing survey (the Understanding Society Innovation Panel) to test methods aimed at reducing under-reporting of income. In addition, we will carry out secondary analyses using existing data sources.

We will apply the data generated to understanding current puzzles in household finances, and make the data available to other researchers in this area.

Our ambition is to transform the way that data on household finances are collected in developed countries, and thereby to transform our understanding of household financial circumstances and behaviour. We will do this by using new technology and innovations in survey measurement to capture the full accounting identity for individual households: net income minus expenditure equals change in financial position; and to use the resulting data to address important, unresolved puzzles in Household Finance.

The following groups outside academia will benefit directly from our findings on how best to collect data on household finances in large-scale social science surveys:

National statistics offices from around the world (e.g. the ONS in the UK, Statistics Canada, the US Bureau of Labor Statistics) and international organisations (e.g. the World Bank, the European Central Bank, Eurostat) that design survey instruments to collect data on household income, consumption or wealth.

Private sector organisations that design survey instruments to collect data on household income, consumption or wealth (some of these will be commissioned by public sector or research organisations, and some will sell products to other private sector organisations).

The following groups outside academia will benefit directly from our substantive analysis of existing micro-data-sets, and of the new data on household finances that will be created through this project:

Organisations from central government (e.g. HM Treasury, DWP, the Child Poverty Unit, the Cabinet Office, plus their equivalents in the devolved administrations of the UK) and other government executive agencies, non-departmental public bodies, parliamentary select committees and quangos (e.g. the Social Mobility and Child Poverty Commission) involved in policy-making in the area of living standards, poverty and inequality.

Organisations (e.g. the FSA, HM Treasury, Bank of England) involved in policy-making concerned with household savings and debt, or other issues concerned with household finances.

Private companies in the financial services sector as well as not-for-profit organisations (e.g. Money Advice Service) that are concerned about assessing the financial circumstances of households, including whether debt levels are sustainable.

Organisations (e.g. think-tanks like the Resolution Foundation or Policy Exchange, and third-sector organisations such as CPAG, the JRF and the Nuffield Foundation) involved in public debate about issues of social policy that are concerned with living standards, poverty and inequality.

Organisations (e.g. Which, Citizens Advice) involved in public debate about issues to do with household finances, savings and debt.

The public will also be affected by changes in policy that arise as a result of the transformed understanding of household financial circumstances and behaviour.

If organisations outside the UK alter the way that they collect data on household finances in large-scale social science surveys, then organisations outside the UK equivalent to the ones listed above will also benefit, as, potentially, will members of the public in other countries.

Our research will also benefit academics, and researchers and analysts outside of academia; we describe how in Academic Beneficiaries.