One of the assumptions underpinning the life-cycle consumption hypothesis discussed in the previous post is that consumers have some beliefs about how long they (the consumers) will live. True, but how will it affect your current consumption patterns? Posted on AugAuthor David Gerard Categories General Interest Tags Bedtime reading, consumption smoothing Consumption Smoothing with a Non-Zero Probability of a Robot Uprising It is also noteworthy and possibly surprising that 70-year olds spend as much on the sauce as 20-year olds do.Īs a bonus, some clever interns at The Atlantic have peppered each graph’s url with sometimes amusing, sometimes trenchant, and sometimes bordering on subversive commentary. I guess kids and the nightlife are substitutes, not complements. For example, it seems that people in their late 20s and early 30s start dropping money on childcare services, which temporarily cuts into the amount spent going out boozing.

In addition to these brief insights, the graphs seem to corroborate some intuition about how spending changes. I wonder what’s going on? (Seems like a job for the Economic Naturalist). After that, underwear spending falls like a stone, and by age 75 or 80 it appears that most men are only spending a couple bucks a year on those closest to them.Īt the same time, however, there is a decided uptick in spending on sleepwear/loungewear. The average male aged 45-54 will drop about $120 on his drawers during that ten-year stretch. Send Grandpa some new drawersįirst off, it appears that men pour increasing amounts of money into their undergarments as they age, reaching “peak underwear” at around age 50. consumer spending on various goods and services ranging from booze and smokes to lawn and garden services to men’s furs vary by the age of the consumer. Exhibit A: The Atlantic Monthlyhas a fascinating set of figures showing how U.S. And empirically, of course, this turns out to be the case. You can check out more on Modigliani and his contributions at The New Palgrave Dictionary of Economics (available at campus IP addresses otherwise, Google it).Įven if people spend the same total amount of money every year, however, they will probably be some variation in the items they actually spend it on. It also implies that government deficits are a source of fiscal “drag” on economic growth.

First, it is a micro model that has significant macro implications –aggregate consumption depends on (expected) lifetime income, not current income. The Modigliani and Brumberg work is now known as the Life Cycle Hypothesis, and it is a seminal contribution for a number of reasons. As a result, the young and the old spend more than they make, whereas the middle aged make more than they spend. So, if I expect to make a lot of money years from now, I will spend at higher levels now, even if I don’t have it yet. The big-picture implication is that individuals base their consumption spending on their expectations of lifetime earnings.

In other words, total individual consumption expenditures are pretty stable, or smooth, from year-to-year, rather than having individuals curb consumption in one year to pay for big expenditures in the next. That said, here is a piece I wrote on life-cycle consumption not too long ago:īack in the day, Modigliani and Brumberg (from their perches in Urbana-Champaign!) posited that individuals smooth out their consumption over the course of their lifetimes. I was informed earlier today that today is, in fact, national underwear day.

Consumption economics