Since the economic downturn, the vast majority of Britons have been facing a cost of living crisis. This report looks at how the UK’s middle earners – earning between £31,000 and £42,300 a year – have fared in the years since the crisis of 2008. It lays out the particular challenges and threats faced by this group: including their dependency on wages, pre- 2008 dependency on credit, low levels of saving, and a pervasive optimism regarding their situations, which discourages them from protecting themselves against future hardship.

Contrary to their own assumptions, it was not the financial crisis which created the difficulties faced by this squeezed middle – it has instead exacerbated pre-existing financial vulnerabilities. These long-term trends will continue to dog the squeezed middle throughout their life cycles – hitting them with costs and financial pressures for which they seem under prepared. Irrational Optimists shows that although these issues are present in their thoughts, preparing for them is not an immediate concern.

Despite their problems, this group are defined by self-reliance and a strong work ethic, and are determined not to rely too heavily on the state. The findings presented in this report suggest the squeezed middle must be helped to move from an ‘irrational optimism’ about their situation to a more ‘reasonable hope’, through policies that work with the grain of their instincts. Policy makers must also nudge this group to become more aware of the risks they face – tax cuts or similar help will not help to build the more long-term, sustainable financial resilience that is required.