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Decrease in relative consumer financial vulnerability in 2009

Key findings of the 2009 Genworth Index for Great Britain:

• British households’ levels of op qtimism about financial future increase more than other European countries, despite ongoing financial difficulties
• Great Britain ranked 10th out of 14 European countries in terms of relative financial vulnerability
• Index score improves from 23 points in 2008 to 10 points in 2009; Great Britain still financially vulnerable
• Improvement in UK consumer confidence based more on personal experience than macroeconomic factors

London, 18 November 2009 – Great Britain, fuelled by increased consumer optimism about the financial future, has seen an improvement in its levels of relative financial vulnerability, according to the 2009 Genworth Index published today. The Index survey, commissioned by global Fortune 500 specialist insurer Genworth Financial, is the first academic European study of its kind to capture “financial vulnerability” by considering the current financial situation and recent experiences of households with their future expectations.

The Index, now in its third year, designed by the Personal Finance Research Centre at the University of Bristol and the European Credit Research Institute, and conducted by Ipsos MORI, was created to measure relative financial vulnerability across 14 European countries; surveying 14,000 respondents overall.

In 2009, Great Britain ranks tenth out of 14 with an improved Index score of 10; dropping from 23 points in 2008. The Index is constructed by capturing responses to two questions: how often have households experienced financial difficulty in the last 12 months and what were households’ financial expectations going forward? From analysis of the answers to these questions, 14% of respondents from the UK were classed as being ‘Financially Vulnerable’ and only 9% were ‘Financially Secure’. The Index score is calculated as a ratio of these percentages, where a positive score represents relative financial vulnerability and a negative score represents relative security. As such Britain, with a score of 10, remains tipped towards financial vulnerability and is also some distance from its baseline score of -19 in the first survey in 2007, when as a whole, the country was experiencing relative financial security.

A Shift towards Optimism
While still tipped towards financial vulnerability, further analysis of the improvement in the UK score reveals that there was a substantial shift towards optimism among British households. Almost a quarter (24%) of respondents felt that their financial position will improve over the next 12 months, compared to 15% in the 2008 survey. The number of respondents expecting their situation to get worse also more than halved from 36% in 2008 to 13% in 2009.  The changes experienced in Britain were far greater than the average for all countries surveyed and are unlike any other individual country in terms of magnitude.

“The number of people experiencing financial difficulty has continued its upward trend, with 16% this year saying that they ‘often’ or ‘always’ experienced financial problems compared to 13% in 2008, and so it is perhaps surprising to see that Great Britain has experienced a recovery in confidence and optimism,” said Peter Barrett, Global Managing Director at Genworth Financial’s Lifestyle Protection business.

“In fact, our levels of optimism have increased more than any of the European countries surveyed, including those countries experiencing relative financial security. Like everywhere else, the UK economy has been subject to severe financial stress and a number of factors and policies have come into play over the last year or so, such as lower interest rates and inflation, financial system bailouts and VAT reduction to alleviate this stress. Although we are now seeing small signs of recovery from the current recession, there is still a degree of uncertainty.  This begs the question upon what, specifically, is this new sense of optimism based?”

Why is the British Optimistic?
Genworth Financial, with Ipsos MORI, conducted further qualitative research into respondents in the UK who were facing financial difficulty but were feeling positive; a group the Index study describes as; ‘Strivers’, and asked them why they were feeling more optimistic?  Notably, the findings revealed that the primary reason for consumers feeling more positive comes from factors relating to households’ own circumstances, whether these related directly or indirectly to economic factors or to personal circumstances more generally.

Andrea Finney, Personal Finance Research Centre, Genworth’s academic partner for the Index - explains: “The ‘Striver’ category in the Index increased considerably in 2009 up to 15%, compared to 8% in 2008, and it appears to have been made up of households that have migrated from the ‘Financially Vulnerable’ category, that is, those who have experienced difficulty and do not expect things to get better. The follow-up work shows that overall, the reasons for the optimism among strivers appears to have centred around five key themes. These were: work prospects, money management, the wider economy, personal circumstances and, finally, general disposition.  Not surprisingly, the first three appear to relate directly or indirectly to the economic climate.  However, perceptions about the wider economy featured far less and also interestingly, respondents’ expectations appear not to have been driven greatly by media coverage on the economy.”

Commenting on the findings, Peter Barrett  said, “Not surprisingly job security and prospects featured greatly in consumers’ perception of their financial future, although even those without jobs still found reasons to be cheerful, whether as a means of motivating themselves or by focusing on other more positive financial factors. The recession seems to have necessitated, and in some cases motivated, people to be more financially prudent; encouraging them to sort their finances and reduce their levels of personal indebtedness. This change in behaviour produced a ‘feel good’ factor in some, while other respondents had clearly benefited from external positive macroeconomic factors, but not as many as one would think. Equally, few respondents felt economic news stories affected their mood one way or another.”  

Britain Compared to the Rest of Europe and the US
Beyond Great Britain, the 2009 Index reveals a promising fall in levels of consumer financial vulnerability across Europe since 2008, with the overall score dropping from 35 to 27.  This is despite a recent deterioration in the economic situation of every country surveyed*. The fall can be attributed to both a modest alleviation of financial difficulties and less pessimistic expectations of the future financial position of households. But this promising improvement masks wide variations in the experience of different countries and is still some way short of the levels of security seen in 2007 when Europe had a score of 7 on the Index.

Interestingly, the USA (new to the 2009 Index) was revealed to be less vulnerable than Europe, despite the harsh economic climate it has faced over recent months.  Relative financial vulnerability for the USA was at 14 points on the Index compared to the average of 28 points across the 14 countries in Europe.  Of all the individual European markets surveyed, the Index score for Great Britain is most similar to the USA.

“The varying levels of vulnerability across Europe undoubtedly reflect the different experiences of recession in individual countries and the extent to which some markets are starting to show signs of economic recovery while others are not.  The two countries with the worst levels of financial vulnerability, Ireland and Poland, benefited from the economic boom and entry to the European Union.  Following the high levels of growth that came with this it’s clear that the shock of the global financial crisis was felt most acutely here.” said Andrea Finney. 

In contrast, Portugal and Norway saw large falls in levels of financial vulnerability with their index scores dropping 25 and 23 points respectively. As a result, Norway has now replaced Denmark as the most secure country in the index.

“Financial vulnerability has become a much more pressing issue given the events of the past couple of years. However, even before the economic turndown, there was widespread concern about the consequences of high levels of borrowing and the evolving patterns of risk faced by consumers. We helped create this academically robust and repeatable Index in order to gain an understanding of which households are particularly vulnerable. It is designed to help policy makers take adequate steps to help consumers achieve financial security” said Peter Barrett.  “This is the third year of tracking vulnerability across Europe and it shows the experience of different countries and households throughout the financial crisis.”

* according to IMF World Economic Outlook 2009  

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Notes to editors:
About Genworth Financial
Genworth Financial, Inc. (NYSE:GNW) is a leading Fortune 500 global financial security company.  Genworth hasmore than $100 billion in assets and employs approximately 6,000 people with a presence in more than 25 countries.  Its products and services help meet the investment, protection, retirement and lifestyle needs of more than 15 million customers.   Genworth operates through three segments: Retirement and Protection, U.S. Mortgage Insurance and International. Its products and services are offered through financial intermediaries, advisors, independent distributors and sales specialists.  Genworth Financial, which traces its roots back to 1871, became a public company in 2004 and is headquartered in Richmond, Virginia.   For more information, visit Genworth.com.  From time to time Genworth releases important information via postings on its corporate website.  Accordingly, investors and other interested parties are encouraged to enroll to receive automatic email alerts and Really Simple Syndication (RSS) feeds regarding new postings.  Enrollment information is found under the "Investors" section of Genworth.com.  

Lifestyle Protection Insurance is a family of products that help borrowers and consumers maintain their lifestyle by allowing them to make regular repayments on loans, mortgages and other financial commitments in the event of unemployment, disability or an accident, and clear outstanding balances in the event of death. 

Genworth’s Lifestyle Protection products are offered through distribution relationships with over 250 financial institutions, brokers and advisers in the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, Turkey and the United Kingdom.

Genworth’s Lifestyle Protection entities are rated “A-“, with a stable outlook by Standard and Poors.

 

 

About The Genworth Index

Research was conducted by Ipsos MORI on behalf of Genworth Financial.  Total sample size was 15,000 householders – the person in whose name the accommodation is owned or rented, or his/her partner in order to provide meaningful data from those people with financial responsibilities 1,000 in each of 14 European markets: Denmark, Finland, France, Germany, Great Britain, Greece, Ireland, Italy, Norway, Poland, Portugal, Spain, Sweden and Turkey) – and the United States. Fieldwork was undertaken during late September and the first week of October 2009. The survey was carried out by face to face interviews.  The Index design was undertaken by the Personal Finance Research Centre, University of Bristol and the European Credit Research Institute.

The Genworth Index is derived from responses to two questions:

• Thinking about the general financial position of your household, how often do you experience financial difficulties?
• Looking ahead over the next 12 months, do you think the financial position of your household will improve, stay the same or get worse?

By combining responses to these questions, four distinct groups or clusters can be identified.  The Index takes the ratio of the percentage of people in the financially secure group relative to the percentage of the group who are financially vulnerable.  The resulting value is rescaled so that a score of -100 indicates maximum possible relative financial security and a score of 100 indicates maximum relative financial vulnerability.  For more information visit:  www.genworth.com/consumerindex

 

Media contacts:

Genworth Financial

Guy Genney, Tel. +44 208 380 3786, guy.genney@genworth.com

Hill & Knowlton

Tim Mullen, Tel. +44 207 413 3465, tim.mullen@hillandknowlton.com