Household financial decision making: Qualitative research with couples

4.2.1
Long-term decisions with long-term consequences
Decisions can be shorter- or longer-term in their implementation, and in their consequences. For 
example, making a significant purchase, such as a car or expensive holiday, is a short-term action, 
completed relatively quickly, with outcomes that are evident soon after the decision is made. Other 
decisions, such as buying a house, have relatively immediate consequences – the buyer can live in 
the house soon after reaching all the necessary agreements, for example – but saving up for the 
purchase itself generally takes years to complete and so the decision is in that sense a long-term 
one. Figure 4.1 below illustrates some short- and long-term decisions and consequences. 
Figure 4.1 Short-term and long-term decisions and consequences
Buying first 
property
Starting a 
business
Mortgage
Car
Holiday
Short-term
Long-term
Consequences
Having 
children
Life 
insurance
Getting 
married
Pension
Short-term
Long-term
Decisions
Retirement decision making

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Retirement decision making
Pensions stood out as long-term decisions with long-term consequences. Couples tended not to 
recognise the relative ease of implementing a pension or the benefits of beginning to save for the 
future. Instead, they generally perceived no immediate result of joining a pension scheme and 
beginning to make contributions, other than a decrease to net earnings. 
While classical economic theory says that people are essentially rational and self-preserving in 
making decisions, behavioural economics posits an alternative view: that people make much 
less rational, more imperfect decisions, in real life. In their explanation of behavioural economics’ 
foundations and features, Thaler and Sunstein (2008) include a description of factors that cause 
people to make poor choices, many of which are relevant to this discussion. 
Behavioural economics argues that people tend to make poor choices when these choices have 
delayed effects. Indeed, participants pointed out that they were expected to make choices about 
retirement provision years before they reached this stage of their life. Moreover, for most people, 
the relationship between pensions-related decisions and the retirement experience was ambiguous. 
The expected income from a pension would begin to be paid only in several years’ or even several 
decades’ time, and some people reported that they did not understand from the projections they 
received how much income a pension would provide, or, consequently, the experience that their 
behaviour in saving into a pension scheme, would translate into. 
‘I know how much it will be worth and what it would do at the moment, but the forecast 
changes every year. Obviously, inflation and stuff like that would alter it.’
(Simon, 40s, North East)
 
‘It’s very difficult to estimate how long you’ll continue in decent health, and even what you
want in ten years’ time.’
(Jack, 50s, North West)
The decision to save in a pension scheme was long-term, with the consequence – an income that 
most people thought of as being part of the far-off future – also long-term in nature. It followed that 
for most couples, pensions were outside the scope of most of their conversations about financial 
decision making. Relatively few couples participating in the research had made a significant financial 
decision that was specifically pensions-related, such as beginning to make contributions, or deciding 
to increase their level of contributions. 
Compounding this, individuals with non-state pensions were most often members of workplace 
schemes. The implication of these schemes’ nature as workplace pensions, was that the possibility 
of joining was often introduced, considered and negotiated, specifically within their workplace. 
Consequently, it was natural for the decision to be made in the workplace, too. 
‘I kind of just did it [joined the scheme] but I did tell [Keiran] afterwards and luckily he said, 
“That looks good.”’
(Reena, 20s, North East)
The decision to join a workplace pension was itself often a passive one, and more a matter of 
deciding to accept what was offered, than of actively seeking out or selecting a product and level
of contribution. Crucially, the workplace pension was often thought of as an individual product, and 
the decision to participate in a workplace scheme as an individual one. 
‘The pension is something that you have got to wrap around yourself. It’s individual.’
(Edith, 60s, North East)

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