What age group has the most disposable income

December 2015 | Vol. 4 / No. 14

PRICES & SPENDING

By Ann C. Foster

The Consumer Expenditure Survey (CE) publishes information classified by characteristics such as income, household size, and age of the reference person.1 This article uses 2013 CE data to examine the relationship between age and consumer expenditures.  This relationship is important because the aging of the baby-boom generation will influence the overall level and composition of consumer spending in the years to come.2

Data show that:

• Outlays on pensions and Social Security increased with age up to 45–54 years before declining.
• The share of the food budget devoted to food at home increased with age while the share devoted to food away from home declined.
• Healthcare spending, in dollar amount and as a share of the household budget, increased with age.
• CE household data classified by age of the reference person show that annual expenditures and pretax income are “hump” shaped over the lifecycle, lowest for the under 25 years group, then increasing to their highest levels for the 45-54 age group and then declining for the remaining groups (See chart 1 below and tables 1 and 2 at the end).3

In 2013, pretax household income rose from $27,914 for the under-25 age group to $78,385 for the 35–44 age group and $78,879 for the 45–54 age group and then steadily declined to $34,097 for the 75-and-older group. Total annual expenditures followed the same pattern, increasing from $30,373 for the under-25 group to $58,784 for the 35–44 age group and $60,524 for the 45–54 age group and then declining to $34,382 for the 75-and-over group. The differences in pretax income and in total expenditures were not statistically significant between the 35–44 group and the 45–54 group.

When examining major consumption categories, however, not all follow the life cycle pattern mentioned above.

Food

Food spending went from $4,698 for the under-25 group to about $7,900 for both the 35–44 and 45–54 years groups and then declined to $4,144 for the 75 years and older group (see table 2). The components of food spending (food at home and food away from home) also followed a similar pattern. For the 35–44 years and 45–54 years groups, however, the difference in the amounts spent for total food, food at home, and food away from home was not statistically significant.

The share of the food dollar spent on food at home increased with the age of the reference person, from 55.4 percent for the under-25 age group to 68.2 percent for the 75-and-older group, while the share devoted to food away from home decreased from 44.6 percent for the under-25 group to 31.8 percent for the 75-and-older group. The only exception was the 65–74 age group, where the share of the food dollar devoted to food at home was slightly lower and the share of the food dollar devoted to food away from home was slightly higher than those for the 55–64 years group. (See chart 2).

Housing

Housing outlays did not strictly follow the hump-shaped pattern previously described. Spending increased from $10,379 for the under-25 age group and peaked earlier in the life cycle at $20,619 for the 35–44 age group, and then became rather flat until it reached $12,314 for the 75-and-older group. Nonhousing outlays (total expenditures less housing expenditures) did follow the hump-shaped pattern. Previous research using CE data also found this pattern, even after the effects of other factors were taken into account (See chart 3).4

Clothing (apparel and services)

For the under-25 age group, the average amount spent on clothing was not statistically different from the amount spent by the 25–34 age group—$1,513 and $1,832, respectively.  While the greatest amount spent on clothing was $1,960 for the 35–44 age group, this amount was not statistically different from the $1,832 for the 25–34 age group and the $1,826 for the 45–54 age group. Spending, however, declined to $1,563 for the 55–64 years group to $1,222 for the 65–74 years group to $768 for the 75 years and older group. These differences were statistically different.

Clothing is often considered a work-related expense that should decrease when household members retire. Households with a reference person 65–74 years and 75 years and older had the fewest earners (0.7 and 0.2, respectively).  This could be one reason why they spent the least on clothing ($1,222 and $768) and why clothing accounted for the lowest share of the budget (2.6 percent and 2.2 percent) of all groups (See table 2 and chart 4). Previous research using CE data has found that even after controlling for the effects of income, family size, and other factors, age was negatively associated with spending on clothing.  Being retired exerted a negative effect on clothing expenditures distinct from age.5

Transportation

In 2013, transportation spending averaged $5,672 for the under-25 age group. Spending increased to $10,519 for the 35–54 age group, an amount not statistically different from the $10,782 spent by the 45-54 age group. Spending declined from $9,482 for the 55–64 age group to $5,149 for the 75-and-older group. Although 87 percent of all households owned at least one vehicle, only 67 percent of the under-25 group owned at least one vehicle, compared with 78 percent of the 75-and-older age group. Vehicle ownership among the remaining groups narrowly ranged from 88 percent to 91 percent. Transportation’s share of the household budget was lowest (15 percent) for the 75-and-older group and ranged from 17 percent to 19 percent for the remaining groups. Because transportation, like clothing, is considered a work-related expense, spending should be expected to decrease with age of the reference person and the accompanying decline in number of earners per household.  This pattern may be seen in chart 4.6               

Healthcare

Out-of-pocket healthcare spending increased with the age of the reference person from $943 for the under-25 age group to $5,188 for the 65–74 age group. The $4,910 spent by the 75-and-older group was not statistically different from the amount spent by the 65–74 group. Healthcare’s share of the household budget increased with age from 3.1 percent for the under-25 group to 14.3 percent for the 75-and-older group. Previous research using CE data from the 1998, 2003, and 2008 Interview Surveys also found a positive association between healthcare spending and age among households with healthcare expenses.7

Because the CE does not sample the institutionalized population, most household spending on nursing home care is not included.  Data from the National Health Expenditure Accounts (NHEA), which include the institutionalized population, show that in 2013, household out-of- pocket spending accounted for 29.4 percent ($45.8 billion) of the $155.8 billion spent on nursing home care. If the institutionalized population were included in the CE, it is likely that healthcare spending for the 65–74 and 75-and-older age groups would be much higher and claim a greater share of the budget compared with younger age groups.8

Entertainment spending

Entertainment spending averaged $1,243 for the under-25 age group. Spending increased to $2,958 for the 35–44 age group, an amount not statistically different from the $3,070 spent by the 45–54 age group. Spending declined to $2,651 for the 55–64 age group, an amount not statistically different from the $2,488 spent by the 65–74 age group. The $1,422 spent by the 75-and-older group was statistically different from the amounts spent by the other age groups. The share of the household budget accounted for by entertainment spending followed no consistent pattern. The budget share claimed by entertainment was highest (5.3 percent) for the 65–74 age category and lowest (4.1 percent) for the under-25 and the 75-and-older categories.9  Existing studies using CE data indicate that the age of the reference person, other factors being equal, is negatively associated with entertainment spending.10

Pensions and Social Security

Outlays on pensions and Social Security steadily increased in dollar amount and as a share of total expenditures from the under-25 age group ($2,153 and 7.1 percent) to the 45–54 group ($7,305 and 12.1 percent), gradually declining to ($6,593 and 11.8 percent) for the 55–64 age group. This was followed by a sharp declines for the 65–74 group ($2,833 and 6.1 percent) and 75-and-older group, ($832 and 2.4 percent). These findings mirror the number of earners per household in each age group, which went from 1.1 in the under-25 age category to 1.6 in the 35–44 and 45–54 age categories, before declining from 1.3 for the 55–64 age category to .7 and .2 for the 65–74 and 75-and-older categories, respectively. Households with a reference person 65–74 and 75 and older are more likely to have retired members who are collecting pension and Social Security benefits rather than making contributions. (See chart 4).11

Other expenses

The amount spent on other expenses12 followed the typical hump-shaped pattern, increasing from $3,371 for the under-25 age group to $6,833 for the 45–54 group and then declining to $4,844 for the 75-and-older group. The share of the budget accounted for by this category followed no distinct pattern.

Conclusions

Total annual average household expenditures and associated income increased with the age of the reference person from the under-25 age group to the 35–44 group, which was not statistically different from the 45–54 group. Annual spending and income then declined with age of the reference person for the remaining groups. Household size also increased with age of the reference person from 2.0 persons for the under-25 age group to 3.4 for the 35–44 age group and then declined to 1.6 persons for the 75-and-older group. Larger households, other factors being equal, would need to spend more for most goods and services compared with smaller households.

With one exception, the share of the food budget devoted to food at home increased with age while the share devoted to food away from home declined.

Spending on clothing, transportation, and pensions and Social Security was lower in dollar amount and as a share of the household budget, for households with a reference person 65–74 years and 75 years and older compared with the sample as a whole. Older households had the fewest earners (0.7 for those with a reference person 65–74 years old and 0.2 for households with a reference person 75 and older, compared with 1.3 for the sample as a whole), indicating that spending on the three categories are largely work-related and decreases when household members retire.

Healthcare was the only expenditure that increased, in both dollar amount and as a share of the household budget, with the age of the reference person.

This Beyond the Numbers article was prepared by Ann C. Foster, an economist in the Office of Prices and Living Conditions, Bureau of Labor Statistics. Email: , telephone: (202) 691-5174.

Information in this article will be made available to sensory-impaired individuals upon request. Voice phone: (202) 691-5200. Federal Relay Service: 1-800-877-8339. This article is in the public domain and may be reproduced without permission.