Caring currencies

Social care for the elderly costs the UK Government £16billion each year, according to a recent report. There is an unmet need for social care, which is forecast to increase over the next 15 years.

What to do about it? The obvious solution to any economist is simple. Demand is exceeding supply. The price must rise to equate demand with supply. In other words, increase the wages of social care workers. More people will choose to enter the profession, thereby increasing the availability of social care. School-boy stuff.

But there’s a problem. This isn’t your typical private market. For a significant proportion of the elderly, purchasing social care for themselves isn’t affordable. And besides, they have paid taxes and national insurance throughout their lives, with the expectation that the state will look after them in their time of need. This is a Government problem. And the UK Government isn’t too keen on options that involve spending more money at the moment. 

So the Government has set the busy bees at the Behavioural Insights team to use behavioural economics (bear in mind, the term is used loosely) to come up with a lower cost solution. The solution: a Japanese style “Fureai Kippu” scheme. The idea is that people offer their time to look after the elderly in return for time credits. These time credits can be transferred to someone of their choice, perhaps a friend or relative living in another part of the country, or saved up for their own use in the future.

No Government spending increase = A happy Government.

Can you really get something for nothing?

In a world with purely rational self-interested economic agents, it would be tricky to make this idea work. Would people choose to participate in the scheme? It is likely that many people would be better off working a few extra hours, and earning some extra money. Money is, after all, much more flexible than a time credit. You can save the money for your social care needs in the future, you could choose to spend the money on elderly relatives, or you can do something else if you prefer. 

Particularly if you don’t have any elderly relatives, it is unlikely that you would choose to participate in the scheme – unless you were worried about how the cost of social care might change in the future. Then, a fixed time credit provides a guaranteed exchange rate in the future: you are guaranteed a certain number of hours, and don’t need to worry that when you’re old, the price of care might be higher than you expected. But this entirely relies on trust that the time credit will indeed be honoured in the future. And with an ageing population, the supply of new time credit volunteers may well dwindle. Where higher wages for social care workers might tempt migration to fill the supply gap, who would move to a different country for the chance to earn a “time credit”? So people need to trust that Government will stand behind and honour time credits in the future, even if it costs them money, in the event that not enough people of future generations are willing to donate their time.

If you’re not very rational at all, would you participate in the scheme? Perhaps, if you have elderly relative that you would like to transfer a time credit to. But as for saving up for yourself, well, if we already fairly bad at saving for our retirement, is it likely that people will save up time for the future?

The scheme probably works best if you know you’re not very good at planning for the future and you want to do something about it. Or if you’re a bit irrational but are just rational enough to realise that you are. In that case, saving up for the future in the form of a “time credit” rather than money could be quite a good self-commitment mechanism. You can’t fritter a time credit away on a few impulse buys. It’s a bit like Odysseus having himself tied to the mast so he can’t be tempted by the sirens’ song: if you know you’re going to have problems exercising self-control, you can plan in advance to restrict your ability to give way to temptation.

So, this scheme has a chance of working to an extent, if there are enough people willing to earn credits they can transfer to elderly friends and relatives. But to have enough supply and flexibility in the scheme, we ideally need more than that: we need people willing to give up their time now but only cash in their credit in the future.

And that needs a delicate balance of trust that the time credit will be honoured by future Governments and people who are a bit “irrational” and yet rational enough to know they are.

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