Topic 9: Economic Cycles & Demographic Changes

LO5: Understand external factors that impact personal financial plans

👨‍👩‍👧‍👦 Meet the Baker Family

Throughout this course, we follow the Baker family - three generations living in Southampton. Their experiences help us understand how economic changes affect real people.

The Baker Family Tree

P
Philippe (70s)
Retired dock worker
L
Lisa (70s)
Retired hairdresser
D
Daniel (40s)
Insurance worker
S
Sue (40s)
Medical secretary
R
Richard (40s)
Self-employed potter
M
Marion (40s)
Hotel events manager
J
Jacob (19)
Uni student / waiter
So
Sophie (17)
School student
B
Ben (14)
School student

What You Need to Learn

  • Understand the four stages of the economic cycle
  • Know how recessions and growth affect individuals and families
  • Understand different types of migration and their effects
  • Know how demographic changes impact personal finance and government policy

📉 The Economic Cycle

M
Marion's Story: Living Through a Recession

"A few years ago I was made redundant from my job with an events company. I was unemployed for four months before finding a new job with the Grand Hotel. This experience changed my attitude towards my economic rights and responsibilities."

What happened to Marion? During a recession, the events company had fewer bookings. They couldn't afford to keep all their staff, so Marion lost her job. This is a real example of how economic cycles affect ordinary people.

The Four Stages of the Economic Cycle

Stage What's Happening Impact on the Bakers
1. Growth Economy expanding, more jobs, businesses doing well, people spending more Richard sells more pottery; Daniel gets a bonus; Jacob finds it easy to get shifts at the restaurant
2. Peak Economy at its highest point, inflation may rise, interest rates may increase Daniel and Sue's mortgage payments increase; prices in shops go up faster than wages
3. Recession Economy shrinking, businesses closing, unemployment rising, less spending Marion loses her job; Richard's pottery sales drop; Jacob's hours are cut
4. Trough Economy at its lowest point, but starting to recover Marion finds new job at hotel; government cuts interest rates to help recovery
💡 Key Point: The economic cycle repeats continuously. Growth → Peak → Recession → Trough → Growth again. Understanding where we are in the cycle helps with financial planning.

🎯 Scenario 1: Marion Faces Redundancy

📋 The Situation

Marion worked for an events company earning £22,000 per year. When the recession hit, the company lost clients and had to make staff redundant. Marion received the minimum redundancy payment allowed by law - less than two months' rent on her flat.

Marion's monthly salary (gross)£1,833
Her monthly rent£650
Redundancy payment received£1,200
Her savings£400
Jobseeker's Allowance (per month)£334

🤔 What Would You Advise Marion?

Marion has lost her income but still has bills to pay. She qualifies for Jobseeker's Allowance, but it's much less than her salary. What should she do?

M
What Marion Actually Did

"I qualified for Jobseeker's Allowance and other benefits, but they did not pay enough for me to keep renting my flat, running my car and having the same lifestyle as when I was working. So I had to move back in with my parents while I looked for a new job."
✓ Good Decisions
  • Claimed benefits she was entitled to
  • Reduced expenses by moving home
  • Kept looking for work actively
✗ What She Learned
  • Had saved very little while working
  • Relied too much on assuming benefits would cover everything
  • Didn't have an emergency fund

M
Marion's New Approach

"Now I have a new job as an events manager at a hotel earning £24,000. I'm determined to save money so that, if I am made redundant again, I will be able to pay my own way for as long as possible. I am taking more responsibility for my financial future."
1

Activity: Help Marion Plan for the Future

Marion now earns £24,000/year (£2,000/month gross, about £1,585 net after tax and pension). She wants to build an emergency fund. How much should she save?

🎯 Scenario 2: Richard's Business in a Recession

R
Richard's Challenge

"I'm a self-employed potter. I sell bowls, plates, jugs and vases from my website. During a recession, people have less money to spend on non-essential items like handmade pottery. My sales dropped by 40%."

📋 Richard's Situation

Before Recession
Monthly sales£2,500
Costs (clay, electricity, etc.)£800
Monthly profit£1,700
During Recession
Monthly sales (↓40%)£1,500
Costs (same)£800
Monthly profit£700

🤔 What Should Richard Do?

Richard's profit has dropped from £1,700 to £700 per month. His bills haven't changed. What are his options?

2

Activity: Effects of a Recession

Sort these effects - which typically happen during a recession and which during economic growth?

🌍 Demographic Changes

P
Philippe's Story: Immigration

"In the 1960s there was a shortage of workers in the UK, so I left my home in Africa to work in a shipyard in Liverpool. When I arrived, I changed my family name to 'Baker' so it would be easier for English people to pronounce. I became a British citizen because I was born in a Commonwealth country and my mother was British."

Why did Philippe immigrate? Economic factors - there were jobs in the UK that needed filling. His immigration helped the UK economy grow.

Types of Migration

Type Definition Baker Family Example
Immigration Moving INTO a country from another country Philippe moved from Africa TO the UK
Emigration Moving OUT OF a country to another country If Jacob moved to Australia, he would EMIGRATE from the UK
Internal Migration Moving within the same country Philippe moved from Liverpool to Southampton for work
Urbanisation People moving from countryside to cities Philippe and Lisa retired to a village; their children moved to the city for work
🎯 EXAM ALERT: Don't confuse immigration and emigration!
  • IMmigration = coming IN
  • Emigration = Exiting
3

Activity: Types of Migration

Sort each scenario into the correct type of migration:

👴 The Ageing Population

P
L
Philippe and Lisa's Situation

"Philippe and I are both retired. When we were younger, Philippe worked full-time at the docks and I worked part-time as a hairdresser. Now, our income is from our State Pension, plus the pension Philippe gets from the shipyard and the interest paid on our savings."

📋 The Challenge of an Ageing Population

The UK population is getting older. This creates challenges:

People over 65 in 1950~11%
People over 65 today~19%
People over 65 by 2050 (estimated)~25%

Why does this matter? Fewer working-age people paying taxes to support more retired people needing pensions and healthcare.

Effects on the Baker Family

Effect Impact on Philippe & Lisa Impact on Daniel & Sue
State Pension age rising Already retired Will have to work longer before getting pension
More demand for healthcare Longer waiting times for NHS Higher taxes to pay for NHS
Care costs May need to pay for care May need to help parents financially
Inheritance May leave less to children if care costs are high May inherit less than expected

🎯 Scenario 3: Rising Energy Costs

P
Philippe Explains

"We get paid a one-off Winter Fuel Payment of £200 - that's £100 each. Last year, our gas and electricity bill for the winter was £400, so we paid £200 ourselves. But energy prices have risen by 10%, while our fuel allowance stayed the same."

📋 Philippe and Lisa's Winter Fuel Situation

Last Year
Winter energy bill£400
Winter Fuel Payment£200
They paid themselves£200
This Year (10% price rise)
Winter energy bill£440
Winter Fuel Payment (unchanged)£200
They must pay themselves£240

Result: Philippe and Lisa are £40 worse off in real terms because inflation (price rises) was higher than the increase in their benefit.

4

Activity: True or False

🎯 Scenario 4: Jacob Worries About a Recession

J
Jacob's Situation

"I'm at university and work part-time as a waiter. I've heard there might be a recession coming. My aunt Marion lost her job in the last recession. I'm worried about what would happen to me if the restaurant cuts my hours or closes."

🤔 What Should Jacob Be Most Concerned About?

If a recession occurs, what is likely to be Jacob's MAIN financial concern?

💡 Learning from Marion: Jacob saw what happened to his aunt Marion during the last recession. The main risk in a recession is unemployment - losing your job means losing your income. This is why building an emergency fund is so important.
5

Activity: Fill in the Blanks

6

Flip Cards: Key Terms

Click each card to reveal the definition:

📝 Exam Practice: The Baker Family

📋 Read the Case Study

The Bakers are worried about news reports of a possible recession. Here's their current situation:

  • Philippe & Lisa (70s): Retired, living on State Pension plus Philippe's work pension. Own their home outright.
  • Daniel & Sue (40s): Both employed, mortgage on their home, three children.
  • Richard (40s): Self-employed potter, variable income, rents his workshop.
  • Marion (40s): Employed at hotel, learned from past redundancy - now has 3 months' expenses saved.
  • Jacob (19): University student with part-time job, minimal savings.

Question 1: Who in the Baker family would be MOST affected by rising unemployment in a recession?

Question 2: Why might Philippe and Lisa be LESS affected by a recession than the younger Bakers?

Question 3: Marion has saved 3 months' expenses. This is an example of:

📝 Practice Quiz

Test yourself with these exam-style questions:

📚 Summary: What the Bakers Taught Us

Family Member Key Lesson
Marion Recessions cause unemployment; save for emergencies; don't rely on benefits alone
Richard Self-employed people face variable income; recession hits non-essential spending first
Philippe Immigration can benefit the economy; benefit payments may not keep up with inflation
Daniel & Sue Working people pay taxes that fund pensions and benefits; ageing population means higher taxes
Jacob Young workers are vulnerable in recessions; learn from family's experiences
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