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Why Consumers Aren’t Spending More – The Impact of and Aging Population

Last update on: Mar 14 2020

This brief article from some Federal Reserve economists explores the question of why in recent years consumers haven’t been spending as much as expected. Given recent increases in incomes, home prices, and investment prices, spending would be higher if consumers tracked behavior before the financial crisis. The authors consider the effects of psychological effects of the financial crisis, inequality, an aging population, and less spending of home equity. They conclude most of these factors, but not all of them, contribute to the lower spending pattern.

Another long-term trend is population aging. However, this trend is unlikely to be putting downward pressure on the consumption-to-income ratio currently. Data from the Consumer Expenditure Survey shows the saving rate exhibits a hump-shaped lifecycle pattern, and as baby boomers are retiring and spending a larger fraction of their income, one might actually expect them to put upward pressure on the consumption-to-income ratio. … [T]he population distribution would have put downward pressure on the consumption-to-income ratio through the mid-2000s when the proportion of “savers” peaked relative to “spenders”. As of 2017, the relative proportions of these two groups are close to their historical average, and in fact, one might expect demographic trends will push up the consumption-to-income ratio over the next decade.



February 2021:

Congress Comes for your Retirement Money

A devastating new law has just been enacted, with serious consequences for anyone holding an IRA, pension, or 401(k). Fortunately, there are still steps you can take to sidestep Congress, starting with this ONE SIMPLE MOVE.

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