Consumption and Economic Well-Being at Older Ages: Income- and Consumption-Based Poverty Measures in the HRS

40 Pages Posted: 23 May 2008

See all articles by Michael D. Hurd

Michael D. Hurd

RAND Corporation; State University of New York at Stony Brook - College of Arts and Science - Department of Economics; National Bureau of Economic Research (NBER)

Susann Rohwedder

RAND Corporation

Date Written: January 2006

Abstract

According to economic theory, well-being or utility depends on consumption. However, at the household level, total consumption is rarely well measured because its collection requires a great deal of survey time. As a result income has been widely used to assess well-being and poverty rates. Yet, because households can use wealth to consume more than income, so an income-based measure of well-being could yield misleading results for many households.

We use data from the Health and Retirement Study to find income-based poverty rates which we compare with poverty rates as measured in the Current Population Survey. We use HRS consumption data to calculate a consumption-based poverty rate and study the relationship between income-based and consumption-based poverty measures. We find that a poverty rate based on consumption is lower than an income-based poverty rate. Particularly noteworthy is the much lower rate among the oldest single persons such as widows. The explanation for the difference is the ability to consume out of wealth.

Suggested Citation

Hurd, Michael D. and Rohwedder, Susann, Consumption and Economic Well-Being at Older Ages: Income- and Consumption-Based Poverty Measures in the HRS (January 2006). Michigan Retirement Research Center Research Paper No. WP 2006-110, Available at SSRN: https://ssrn.com/abstract=1093864 or http://dx.doi.org/10.2139/ssrn.1093864

Michael D. Hurd (Contact Author)

RAND Corporation ( email )

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State University of New York at Stony Brook - College of Arts and Science - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Susann Rohwedder

RAND Corporation ( email )

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1776 Main Street
Santa Monica, CA 90407-2138
United States

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