MFS Windfall Survey

MORI Financial Services conducted a survey on the response of consumers to special payouts ("windfalls") this year as a result of demutualisation activity in the building society and insurance sectors. The Bank of England participated in this survey. Among the other institutions participating were Barclays Bank PLC.

MORI Financial Services conducted a survey on the response of consumers to special payouts ("windfalls") this year as a result of demutualisation activity in the building society and insurance sectors. The Bank of England participated in this survey. Among the other institutions participating were Barclays Bank PLC.

The survey was conducted between 25 - 29 August. The results are based on telephone interviews covering 764 individuals who have received a payout from the Alliance & Leicester, Halifax / Leeds, Woolwich or Norwich Union flotations. The total value of free shares allocated in these flotations was just under 16331 billion, or over four-fifths of estimated special payouts in the whole of 1997. The survey results have been weighted according to the size of the payout received by each individual.

The survey differs from previous surveys in two ways:

  • It covers actions as well as intentions. Surveys conducted before the windfalls were paid out asked about intentions only, and may be less reliable.
  • It addresses the extent to which spending of windfall receipts on big-ticket items is additional. That is, spending over and above that which would have been undertaken had the windfalls not happened, by drawing on alternative sources of finance.

Main Findings

Destination of share proceeds

An estimated 35% of free shares, by value, have been sold. 40% of individuals have sold all or some of their free shares (Table 1). This comprises people who pre-registered to sell their shares at auction and those who sold all or some of their shares afterwards.

Table 1: What people have done with their free shares

  As proportion of shares, by value As proportion of individuals
  % %
Amount of shares sold 35 40
Amount of shares kept 65 60
By institution Known who pre-registered to sell their free shares Sample proportions
  % %
Alliance & Leicester 28 28
Halifax 25 26
Woolwich 23 32
Norwich Union n/k 14

Out of the share proceeds, 47% was spent; 6% was used to repay debt and 47% was saved (Table 2).

Table 2: Destination of the proceeds from share sales

  Proportion of shares, by value Proportion of individuals
  % %
Amount of shares sold 35 40
Of which:    
Spent 47 47
Repaid debt 6 9
Saved 47 45

Of the money spent from share sale proceeds, 30% was spent on home improvements; 25% on holidays; 22% on cars; 10% on household goods and 13% on "other items". Table 3 shows grossed-up figures of total spending in these categories out of the estimated 16335.9 billion of windfalls paid out in 1997. These are based on the value of spending in each category from the survey rather than the number of people who said that they spent their windfall on particular items.

Table 3: Spending out of the proceeds from share sales, by category

  As proportion of individuals As proportion of total spending Estimated value of total spending out of 1997 windfalls on:
  % % 163 billions
Home improvements 25 30 1.8
Holidays 26 25 1.5
Cars 14 22 1.3
Household goods 22 10 0.6
Other 13 13 0.8
All spending 100 100 6.0

Estimated value of windfalls in 1997: 16335.9b

Additional spending

The survey asked individuals about their big-ticket purchases - home improvements, holidays, cars, household goods - to gauge how much of the reported spending would have been undertaken even if windfall payments had not occurred.

The additional part of spending out of windfall receipts has two components: spending by those people who bought things that they otherwise would not have bought; and additional spending by those who said that they spent more money on purchases because they received a windfall. Together these account for around 60% of the total spending on the main categories identified above (Table 4). The remainder would have been spent on these items even if windfall payments had not happened, financed by borrowing, savings or lower consumption of other items.

Table 4: Spending out of the proceeds from share sales on big-ticket items

  Estimated value of total spending out of 1997 windfalls on: % of spending which would have been undertaken anyway Value adjusted for spending which would have occurred anyway
  163 billions % 163 billions
Home improvements 1.8 33 1.2
Holidays 1.5 49 0.8
Cars 1.3 36 0.8
Household goods 0.6 24 0.4
All main categories of spending 5.2 38 3.2
Memo: other items 0.8 - -

Pre-windfall spending

5% of the value of windfalls was spent in advance of the receipt of free shares. This estimate is based on the 8% of individuals who said that they increased their spending ahead of receiving their free shares knowing that they were to receive a windfall (Table 5). There is an adjustment to take account of the finding that the average amount of money spent was less than the windfall received.

Table 5: Pre-windfall spending

  % of individuals Estimated proportion of windfalls spent in advance Proportion of money borrowed / withdrawn from savings which was repaid on receipt
  % % %
Spending in advance of windfall payment 8 5  
Proportion financed by:    
Borrowing 3 2 75
Saving 5 3 19

Around 40% of spending in advance of the windfalls being paid out was financed by borrowing, the remainder was financed using savings. 75% of borrowing ahead of the windfalls has been repaid already, and 19% of the savings withdrawn have been replaced.

Intentions

65% of the shares, by value, have been kept. Of these, 5% are likely to be sold in the next 12 months and 65% of the proceeds are planned to be spent (Table 6).

The remainder will either be sold if stock market conditions are favourable (38%), or, held as long term investments (57%). Of the individuals who hold onto their shares, only a small proportion have or intend to borrow or run down other savings in response to their higher level of wealth. The extra funds from these sources are estimated to be worth around 1% of the value of windfalls (Table 7).

Table 6: What people plan to do with the shares they have not sold

  % of shares, by value % of individuals
Amount of shares not sold 65 60
Of which: proportion planned to be:    
- Sold in next 12 months 5 6
- Sold if price is right 38 39
- Held as a long term investment 57 55

In addition, 12% of the value of the windfalls has been placed in short term savings accounts. Of this, 27% is planned to be spent in the next 12 months, accounting for 3% of the value of the windfalls (Table 7).

Table 7: Future spending

  Estimated proportion of total windfalls Value
  % 163 billions
Sell shares in next 12 months 3 1.1
Of which: Proportion to be spent 65 0.7
Keep shares or sell when price is right 62 23.3
Of which: Proportion borrowing/running down other savings 2 0.4
Money placed in short term savings accounts 12 4.3
Of which: Proportion to be spent in next 12 months 27 1.2

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