What causes low consumer confidence?

Low consumer confidence is one of the most cited economic indicators – and one of the least understood. Headlines report the score. Commentary describes whether it’s up or down. But the question that actually matters gets surprisingly little attention: what’s causing it?

The honest answer is that low confidence rarely has a single cause. It emerges from a web of economic pressures, psychological forces and media effects that interact differently for different people. A retired homeowner and a young renter might report identical confidence scores for entirely different reasons – and need entirely different responses.Understanding causation, not just correlation, is where useful insight begins. The causes of low consumer confidence are rarely singular – they’re cumulative, interacting and unevenly distributed.

Economic drivers of low consumer confidence

The obvious suspects are real: inflation, income stagnation, job insecurity, housing costs. All show up in the data. But which matters most depends entirely on who you’re asking.

Young people worry about jobs and income because these determine whether they’ll ever buy a home. Retirees worry about inflation because it erodes the savings they’re living on. Parents worry about costs that compound – childcare, energy, food. Each group has a different pressure point.

One consistent pattern: we worry disproportionately about what’s moving. Change signals danger. It’s not so different from our ancestors scanning the savannah for fast-moving predators. A stable problem, however serious, generates less anxiety than a shifting one.

This explains why interest rate rises hit confidence harder than the absolute level of rates. It’s the direction that unsettles people, not the destination. Behaviourally, people are more sensitive to change than to steady states – uncertainty triggers anxiety faster than hardship alone.

Loss aversion amplifies this further. We feel losses roughly twice as keenly as equivalent gains. A 1% rise in mortgage rates damages confidence more than a 1% fall restores it. The asymmetry is predictable – and largely invisible in headline indices.

There’s also a distinction between absolute and relative economic position. Falling behind peers – losing status, experiencing downward mobility – is psychologically potent. In Kokoro’s data, “falling behind in life” is the number one thing people hide from others. Young people feel this particularly acutely. It’s not just about having less; it’s about having less than you expected, less than those around you, less than you feel you should.

Perception often matters more than reality. Younger people tend toward blind optimism; older people, burned by experience, toward excessive caution. Neither maps perfectly onto actual circumstances. And we’re poor at sizing numbers accurately – we take more from the feel of a situation than the absolute figures. This is why tax freezes feel like good news (even when fiscal drag means paying more) and why compound interest remains perpetually underestimated.

One additional wrinkle: indirect economic hits land softer than direct ones. When the government raises employer National Insurance contributions, confidence barely flinches – even though the effect flows through to wages and prices. Put the same cost directly on consumers and the response is immediate.

Psychological drivers

Money matters, but it’s not the whole picture. Economic anxiety is as much about uncertainty, progress and control as it is about income. Beyond financial pressure, several psychological forces drive low confidence:

Uncertainty and the dread of being blindsided. We hate not knowing what’s coming. Many people catastrophise precisely because imagining the worst feels safer than being surprised by it. The past few years have delivered shock after shock – pandemic, cost-of-living crisis, wars, political upheaval. Each one reinforces the sense that stability can’t be trusted.

Loss of personal progress. Even more unsettling than external chaos is the feeling that your own life isn’t what it was – or isn’t moving in the right direction. Loss aversion applies here too. Stagnation feels like decline. Treading water feels like sinking.

A sense of the world being broken. Leaders seem self-interested. Systems don’t work as they should. Institutions that once provided stability feel unreliable. When the scaffolding around you feels shaky, personal confidence suffers.

Growing wealth inequality. Billionaires with the resources of small nations, visibly influencing global affairs, make ordinary progress feel futile. The gap between those at the top and everyone else has become impossible to ignore.

Decay of community and support networks. Division and disagreement have frayed social fabric. Fewer people have the relationships they need to weather difficult times. Loneliness compounds every other pressure.

Exhaustion and cognitive drain. Perhaps most pervasive: people are simply tired. Constantly reassessing, recalculating, trying to make life stack up. We’re living in an era where you can’t autopilot – and that’s draining. Autopilot is a luxury that comes with stability and success. Without it, every week requires effort.

Worse, much of what people try doesn’t seem to work. Social media is full of hacks and advice that send people running in circles without making real progress. The mental load accumulates. Weariness becomes its own driver of low confidence.

Media and expectation effects

News consumption has a measurable relationship with confidence. Getting consumed by the news is bad for you. But reading no news – relying instead on social media’s distorted lens – is arguably worse.

The sweet spot is staying informed without being dragged down. That way you can distinguish between where you’re genuinely not optimising and where the world is simply failing you. Podcasts often hit this balance better than traditional news – lighter, more contextual, better at explaining the “so what.” The hosts become trusted voices in a landscape where trust is scarce.

Media amplifies negativity. In a clickbait economy, extremes cut through – particularly negative ones. The gap between how bad things are and how bad people believe they are is real. We’re over-indexed on threat, under-supplied with realistic optimism.

There’s also a shortage of compelling visions for the future. The messages that have cut through recently are restorative – “make America great again,” “take back control.” Backward-looking, nostalgic. Though there are signs this is starting to feel stale. Now could be the moment for a more optimistic, forward-facing narrative – if anyone credible steps up to offer one.

Expectations matter too. Confidence is lower when people expected things to be better by now. The expectation isn’t something people can quantify or articulate – it’s more a sense. A slightly depressing feeling that the world, and its impact on your life, should be a bit better than it is. That gap between expectation and reality is a quiet but persistent drag on confidence.

Why consumer confidence index scores oversimplify

Traditional consumer confidence indices report a single number. That number can be reached via countless different paths – a million different combinations of financial pressure, psychological state, media exposure and personal circumstance.

A score tells you the “what.” It can’t tell you the “why.” And without the why, you can’t act effectively.

Consider two people who report identical low confidence:

• Person A is financially struggling – income squeezed, debts mounting, genuinely precarious
• Person B is financially comfortable but anxious about the world – worried about politics, climate, institutional decay

They produce the same headline score. They need completely different responses. A brand offering budget solutions appeals to Person A and alienates Person B. A brand offering reassurance and stability might land with Person B and feel irrelevant to Person A.

Traditional indices can’t distinguish between them. The single score flattens a complex picture into a number that’s easy to report but hard to act on.

Multi-dimensional sentiment analysis

Kokoro’s approach tracks confidence across multiple dimensions – financial security, health concerns, sense of progress, trust in institutions, social connection, future outlook. This isn’t complexity for its own sake. It’s the minimum resolution needed to understand what’s actually driving sentiment and what might shift it.

The difference shows up in what you can advise. Single-score indices tell clients that confidence is down. Multi-dimensional analysis tells them why, for whom, and what to do about it. It gives answers that satisfy both head and heart – grounded in rigour, rich enough to inspire action.

A concrete example: Kokoro’s tracking began during the pandemic. Traditional financially-focused indices showed confidence rising – people had savings because they weren’t spending. Our data showed something different: confidence was low because people felt vulnerable about Covid, isolated, alone. The financial cushion didn’t translate to feeling secure.

As the pandemic ended, traditional indices predicted a “roaring twenties” – pent-up savings unleashed into exuberant spending. Our clients knew that wasn’t coming. The emotional reality was more cautious, more fragile. They planned accordingly while competitors over-projected.

That’s the difference between tracking a score and understanding the causes of low consumer confidence beneath it.