Spending habits according to age tied more to lifestyle than poverty, study says

Published: Friday, Aug. 9 2013 1:45 p.m. MDT

Don Hartman, right, and his wife Ann enjoy some time at a UAW Local 1714 retirees picnic in Lordstown, Ohio Wednesday, July 11, 2007. A new study explores the spending habits of senior citizens and challenges previous notions of poverty among the elderly.

MARK STAHL, AP

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Many economists have long believed in what they call a “hump” in spending patterns. Spending, they say, increases until middle age and drops considerably thereafter.

This understanding of age-defined spending has greatly influenced how policymakers and economists have viewed things like poverty rates, believing that a lower income and decreased spending habits are indications of age-specific poverty.

In an article Thursday titled “Time is money,” The Economist examines this notion, testing conventional economic wisdom against new research.

The article cites a study by researchers Mark Aguiar of Princeton University and Erik Hurst of the University of Chicago that argues spending on what they call “nonessential items” in fact does not drop after middle age, but increases.

The main categories that do see a reduction in spending, according to their research, are necessities such as food, transportation and personal care items.

The researchers attribute the change in spending to “lifestyle shifts.” For example, senior citizens spend less on traveling to work and more on leisure trips; less on clothing, more on eating out.

“Why are these findings important?” the article asks.

“Normally, expenditure is the measure used to assess whether someone is in poverty or not. And by this metric, older people are more likely to be in poverty.”

As the research shows, the elderly do in fact spend less overall, but understanding why can shift the current perception of poverty among the elderly.

“The problem for researchers,” the article continues, “is that government data collection practices lag behind advances in economic thinking.”

Read more about personal finance on The Economist .

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