- The relationships between types of wealth components and consumption
expenditures were investigated as a means of better understanding retired
elderly household well-being. Specifically, the concept of mental account was
used to identify the characteristics of different types of wealth components, and
four mental accounts were identified: flow of investment, current asset A,
current asset B, and future income.
Based on the traditional life-cycle hypothesis, the behavioral life-cycle
hypothesis, and neo-classical demand theory, the consumption functions for the
total and 17 subcategorical consumption expenditures were formulated. These
consumption functions were formulated to study linkages between household
portfolio behavior during the working years and household consumption
behavior during retirement. A tobit linear regression model was utilized to
estimate parameters in consumption functions. The data were drawn from the
Consumer Expenditure Survey, Interview Survey, 1990.
The flow of investment mental account includes Social Security benefits,
pension benefits, and transfer payments from public programs. The current
asset A includes balances in checking and savings accounts, and the current
assets B includes balances in stocks and bonds. The future income includes
market values of home equity and real estate.
The findings supported that the total and subcategorical consumption
expenditures are the most sensitive to changes in flow of investment and the
least sensitive to changes in future income. Further, among retired elderly
households, the four mental accounts differ in influence on subcategorical
consumption expenditures. The flow of investment was positively related to
food at home, food away from home, utilities, household operation, clothing,
transportation, entertainment, personal care, and cash contributions. Current
asset A was positively related to health care, reading and education, and
alcoholic beverages, and negatively related to food at home. Current asset B
was positively related to clothing, transportation, entertainment, reading and
education, and alcoholic beverages. Future income was positively related to
food at home, utilities, household operation, and personal care.
The research findings may help public policy makers understand or predict
consumption expenditures as wealth components change in retired elderly
households. Further, the economic well-being of retired elderly households
should be discussed in terms of different types of wealth components rather
than in terms of total wealth.