65+ Consumer Spending Leaps

The biggest leap in recent U.S. consumer spending is among people 65 and older, according to Gallup poll results, and now experts are examining why.

According to a New York Times report on these Gallup findings, self-reported daily spending rose sharply among American 65 and older – 45 percent, from May 2009 to May 2010. This represents the biggest increase in spending in both raw dollars and percentage. 

Catherine Rampell, writing for the Times Economix blog, offers two potential explanations for the sharp rise in spending among Americans 65 and older:

• Older Americans spend disproportionately on health-care good and services. Health-care costs have a much higher inflation rate than many other consumer purchases. And since the Gallup numbers are not adjusted for inflation, it makes sense that older Americans would appear to be spending more than their younger counterparts – “even if they’re not actually buying more stuff.” Rather, the prices of what they’re buying are rising much faster.
• “Another possible explanation might be the wealth effect,” Rampell suggests. “This refers to the idea that when people feel wealthier – because, for example, their stock portfolio is worth more – they spend more money, even if their income isn’t actually rising.” Older Americans depend more heavily on assets for their incomes, and their investment portfolios are more likely to be dominated by less risky investments.