Spending Patterns and Cost of Living for Younger versus Older Households

Abstract

E conomists often use measures of inflation-the percent change in the aggregate price level in a given period-to estimate changes in the cost of living. For example, an annual inflation rate of 2 percent means that the average household will spend 2 percent more to purchase the same basket of goods this year than in the previous year. However, this aggregate measure can mask large differences in the actual cost of living faced by households with different spending patterns. Older households, for example, typically spend more on health-related services, while younger households spend more on education. If prices in the health-care and medical services sector rise at a faster rate than prices in the education sector, older households may, in turn, experience a higher inflation rate than younger households. Measuring possible differences in the cost of living across age groups requires a comprehensive picture of these groups' spending across expenditure categories as well as how prices in these categories change over time. We use the Consumer Expenditure Survey, the most comprehensive household-level expenditure data set in the United States, to measure the spending patterns of households at different ages. After exploring these differences across age groups, we then combine the expenditure data with price data from the Bureau of Labor Statistics to examine differences in the cost of living faced by different age groups.