THE RECENT COMMENTS made by the Governor of the Central Bank, Gabriel Makhlouf, regarding the current “sharp erosion of living standards”, captures a reality that is all too familiar for households.

For many, this will be their second experience of declining living standards in the recent past following the Great Recession of 2007 to 2013.

While different in many aspects, the Great Recession can provide valuable insights into the effect of economic pressure on household well-being. This can help policy-makers craft responses to protect the economically vulnerable from the most severe effects of economic hardship.

In the course of policy formulation, the effect of economic well-being on children’s lives can be easily overshadowed by other considerations. Yet research has long shown that children are particularly affected by economic pressures.

Irish research found that households’ exposure to the Great Recession had a detrimental effect on children’s performance in the Junior Certificate. In addition, international life course research found that children who grew up during periods of economic hardship continued to experience economic and social penalties long after the economy recovered.

In our recent academic article published in the Journal of Youth and Adolescence, we identified an association between households’ experiences of economic well-being and their children’s development of behavioural difficulties.

This is of both short and long-term policy relevance.

Short-term, behavioural difficulties can affect children’s engagement and performance in school. Long-term, childhood behavioural difficulties are a strong predictor of later life course outcomes, such as the likelihood of being Not in Education, Employment or Training (NEET) in adulthood.

Income not the be-all and end-all

Previous research has largely assumed such associations to be driven by changes in income. Declining incomes have been understood to have a negative effect on interparental and parent-child relations, resulting in children internalising (e.g. anxiety, depression, being solitary) and externalising (conduct difficulties, hyperactivity and/or inattention) behavioural difficulties.

However, our findings indicate that children react differently depending on the type of household economic change.

Change in a household’s income was found to have no meaningful effect on children’s behavioural outcomes. However, adolescent children growing up in households that reported increased subjective financial strain exhibited increased externalised behavioural difficulties.

Material deprivation is associated with increased internalised behavioural difficulties, but only in primary school-aged boys.

Interestingly, the effect of financial strain and material deprivation remain even as income is “held constant”, indicating that the effect of strain and material deprivation on child behavioural outcomes is independent of income.

This is important, because it seems to show that it is not the change in income that affects adolescent children’s development of externalised behavioural difficulties, but rather households’ perception of being under financial strain, while for younger children the material effects of deprivation have the greatest consequences.

Furthermore, the independence of financial strain and material deprivation from income indicates that even households that are otherwise not low income can experience the damaging effects of economic hardship.

This has implications for policy responses.

Squeezed middle

Driven by the understanding that income is an accurate measure of economic well-being, policy approaches are often targeted by income.

This leads to households on lower incomes qualifying for supports that households with higher incomes are excluded from.

However, a focus on income alone does not appear to adequately capture the more nuanced reality of economic well-being.

Targeted measures, while intended at assisting those most at risk, are still leaving families experiencing financial strain unprotected. This is particularly relevant for what has been termed as the “squeezed middle” – the segment of society whose earnings are above the cut-off point for means-tested supports, but whose income does not offer them the financial buffer held by the highest earners.

Caught in the cracks of policy support, such households face relatively high levels of exposure to the changing economic climate.

Policy architects face a difficult balancing act of shielding households from the worst effects of the cost-of-living crisis, while similarly not contributing to further inflationary pressures.

Yet in the course of formulating policy response, consideration should go beyond the purely financial effects of the crisis, and also consider the psycho-social implications.

While targeted policies are important in shielding those at the lower end of the income distribution, relying exclusively on household income to determine support can exclude large swathes of the population from support, with potentially serious effects for children.

Policy approaches that look to reduce the financial pressures on households above income cut-off points should therefore also be considered.

In this regard, non-means-tested supports such as credits for renters and a one-off energy credit are welcome.

Further supports, such as the subsidisation of the cost of commonly acquired services such as transport and healthcare could further help households navigate the current crisis.

Makhlouf outlined factors that have led to the deterioration in living standards, including Russia’s invasion of Ukraine, the energy crisis, pandemic responses in China, and rising inflation. 

The global nature of these issues places them largely out of the control of Irish policy makers, but policy can still play a role in determining how we mitigate their effects on Irish households.

By studying and learning from the effects of the Great Recession, policy makers can gain valuable insights into how to respond to the cost-of-living crisis.

Ryan Alberto Ó Giobúin is a Postdoctoral Research Fellow at the School of Education, University College Dublin; Stefanie Sprong is a Postdoctoral Research Fellow at the Economic and Social Research Institute (ESRI) and Yekaterina Chzhen is an Assistant Professor at the Department of Sociology, Trinity College Dublin.