In earlier blogs I have talked about income adequacy in later life and also about differences within the older age groups – how lumping everyone aged 65 plus together can obscure diversity among older people.
A few years ago I used data from Statistics New Zealand’s Household Economic Survey in some work I did for the Retirement Commission and Age Concern NZ. This gave me expenditure data for single people and for couples, with breakdowns by age between the 65-74 and 75 plus groups. I also used some Australian Bureau of Statistics figures from their Household Expenditure Survey, because this included differences by gender.
These and most other surveys show that, overall, expenditure tends to fall with age.
My conclusions are tentative because there are differences in the dates of the surveys, in the categories of expenditure used and probably other aspects of methodology. The actual figures will change over time, so I am just looking at trends. Do they seem plausible to you?
Comparing the 65-74 and 75 plus groups shows that, for couples, spending on housing, household goods and services, and especially on transport and leisure decreases with age in both Australia and NZ. There was a decline in spending on food in Australia, but not in NZ.
For single people, expenditure on food decreases with age in both countries. The Australian data also shows decreased spending by singles on the other main categories, similar to the pattern for couples. But there was no decrease in leisure spending for NZ singles.
There were increases in spending by single women on transport and household goods and services across the two age groups. There was a decrease in spending for males on housing, but not for females.
Why should spending on food decrease with age? What about spending on leisure activities? And on housing? And why should total expenditure fall with age?
Perhaps, once people are retired, they are able to do more work for themselves (termed ‘home production’), such as gardening and home maintenance, to offset spending on food and professional services. They also have more time to “shop around” for bargains and “specials”. On the other hand, the very old may need more day-to-day assistance in their homes and they may have to pay for these services.
If older people are less active, their need for food and food consumption may decrease. If they have health or mobility restrictions they may be less likely to spend on holidays. Leisure spending appears to decrease with age, but there are differences by household type. The studies suggest that older couples eat more meals at home, whereas single people spend more on meals out, which may be linked to their needs for social contact.
It seems well recognised that very old people have high health costs. But health spending is greatly influenced by the extent of public sector subsidies (which make it difficult to make international comparisons). The data indicates that health spending generally increases with age, but there may be cohort-based preferences in terms of using alternative medicines and therapies, which people have to fund themselves. One writer on the subject suggests that older people should put a reasonable sum in their annual budgets for major medical procedures, assuming that these are paid for out of private funds. Setting aside money in this way may be a rational alternative to medical insurance.
What about housing costs? There seems no reason for them to reduce with age, assuming that people remain in owner-occupation. Insurance, rates, repair and maintenance costs do not fall with age, unless people move into smaller accommodation. Women over 75 in New Zealand spend more on household goods and services than their male counterparts. Is it because many have lost their in-house handyman?
Energy costs may increase with age if houses are to be comfortable and healthy for older people who stay at home more. But we have all heard about people who stint on heating.
Should we expect very old people to spend less on clothing and footwear? Don’t they have just as much right to be smart and fashionable in their dress as anyone else? In my experience, the concept of “Sunday best” is still alive and well. Similarly, 90 year olds require good communication systems, even if they have not moved on from standard telephones. Oncoming cohorts are likely to be greater users of digital technology in all its forms.
Transport is closely linked to meeting everyday needs and maintaining social participation. Whereas very old people may have lower levels of car use, spending on taxis may increase. I will have more to say about coping without a car in another blog.
It seems that needs and preferences are the main factors to explain expenditure patterns and we should not expect everyone to be the same. Needs and preferences may change as different cohorts move into old age. For example, older men spend more on transport than older women and most of this relates to using a private car. More women in on-coming cohorts are drivers and this may change patterns of transport use and spending.
Expenditure is clearly limited by income and perhaps people spend less as they age because their income falls and their assets are depleted. But, on the other hand, assuming that people are not concerned about bequests, they may use up more of their income and wealth and be less keen on saving as their remaining life span grows shorter. Using up your money before you die may be the economically rational response – there are no roof-racks on hearses – but it does not seem to be borne out by actual behaviour. Many people are still waiting for that “rainy day” to arrive right up to the end of their lives.