Retiree Consumerism - Essay Example

1 Retiree Consumerism "The fastest growing segment of the U.S. population iscomposed of those aged 65 and older. The Bureau of the Census reported that in 1994, 1 in 8 Americans was in this age group, but projects that the ratio may be as high as 1 in 5 by 2050"(Census) Rose Rubin and Kenneth Koelin examine how elderly households spend on necessities, compared with non elderly households. Using data from 1980-81 and 1989- 90 consumers expenditure survey, they examine expenditures for housing, food at home, and health care, as well as income, demographics, and receipt of cash assistance (AFDC or SSI). The methodology used to examine the relationship between their variables of interest is based on the life cycle theory of consumption, with total expenditure acting as a proxy for permanent income. "Rubin and Koelin's results indicate that, in general, older consumers spend a higher proportion of their budget on housing and health care than do the non elderly, and that the receipt of financial assistance does not play a role in the spending decisions of both age groups"(Rubin and Koelin) In a study of age groups within the older population, Mohammed Abdel-Chany and Deanna Sharpe uses Tobit analysis to determine whether tastes and preferences differ from those aged 65 to 74 and those aged 75 and older. Using independent variables such as total expenditure (once again as a surrogate for permanent income), region and residence, education of respondent, household size, race and family type, the authors find "differences between the "young-old" and "old-old" (as they term the groups) across all major categories of expense. Furthermore, the effect of the socio-economic variables on 2 spending patterns differed between the two age groups, and among spending categories"(Sharpe et al) Although retirees are commonly treated as one group, in many ways they are as diverse as the general population. Some of the differences in spending among Blacks, Whites and Hispanic retirees may be due to differences in income and spending patterns. Clearly, there are a number of authors and researchers who have embarked upon scholastic sojourns into this area of interest. This paper will take an in depth look at the consumer patterns among the entire spectrum of retirees; with an examination of the three dominant consumer groups; Black, White and Hispanic. Within each group will detail their demographics with specific consumer patterns. Further this paper will group the spending patterns within three types of spending; (1) essential, this would include, housing, food, transportation, health care, insurance etc.,(2) discretionary, would include, entertainment, leisure travel, household furnishing purchases, and (3) unpredictable needs, such as auto repair and parts, cash contributions, emergency health care ad personal care products ad services. To facilitate the analysis, the paper has focused on three types of households; single men, single women, and husband-and-wife couples. These groups have been selected in order to reduce the effect of family size on expenditure patterns. Additionally the effects of other family member characteristics on expenditure are eliminated. For example, pre-retired families with children may be spending differently than those without children, because they may be expecting to send the children to college soon. In either case, expenditures would be different from those who have children of different 3 age, future plans, and so forth. Even so, families with children are presumably the exception, rather than the rule for these families, especially those who are retired. Black, White ad Hispanic Consumer Units "The distribution of retired male ad female consumer units is relatively even for the white group (52 per cent men and 48 per cent women) and the Hispanic group (54 per cent men and 46 per cent women). However, for the African American group, 62 per cent of its retiree population is female, and 38 per cent is male. Forty percent of the retired White group are husband-and-wife consumer units. In comparison, just 18 per cent of the retired Black group are husband-and-wife consumer units, 48 per cent are singles, and 34 per cent are consumer units. For the Hispanic group, 29 per cent are husband-and-wife consumer units, 34 per cent singles, and 27 per cent are other consumer units".(Table 1) "Whites are spread somewhat equally among the four geographic regions, from 21 per cent in the northeast to 28 per cent in the south. In contrast, black retirees are much more heavily concentrated in the south, with almost half (49 per cent) of the retired black consumer units residing in that region, and Hispanic retirees are concentrated in the south (41 per cent) and west (40 per cent)" (Table 1) , below elucidates the assessments made above. Table 1. Demographic Characteristics of retired White, Black, and Hispanic consumer Units ITEM WHITE BLACK HISPANIC MEAN INCOME $24,351 $17,763 $16,947 Average age of respondent 73 71 71 Consumer Unit size 1.7 1.9 2.3 4 Percent Distribution Gender Men 52 38 54 Women 48 62 46 Consumer Unit Composition Husband and Wife only 40 18 29 Single 45 48 34 Other 15 34 27 Region Northeast 22 20 15 Midwest 26 20 4 South 28 49 41 West 24 11 40 Education No college degree 82 90 95 College degree 18 10 5 Tenure Own with mortgage 15 25 21 Own without mortgage 66 44 44 Rent 17 31 34 Other 2 -- 1 Note: dash indicates data are less than 0.1 per cent. Source: Pierre Bahizi, Retirement Expenditures for White, Blacks, and Hispanics Essential Expenditures "Housing, food, and transportation are the largest expenditures components, accounting for about two-thirds of the average consumer units bidget. African American and Hispanic retirees allocate a larger percentage of their expenditures to food than do white retirees. Hispanic retirees allocate a larger percentage of their total expenditure to transportation than do those in the other groups. African Americans spend a larger percentage than either Whites or Hispanics on housing. Of the three groups, Hispanics allocate the largest share on total food (20.5 per cent) and on food at home (17.5 per cent), compared with Whites and Blacks (17.9 per cent and 15.3 per cent, respectively) and Whites (15.1 per cent and 11.2 per cent, respectively)".(Table 2) This can partially be 5 explained by the fact that "Hispanic households are larger (2.3 persons)" (Table 1) Housing "The spending on housing accounts for the largest share of total expenditures for all groups. However, black retirees allocate a larger share to housing (35 per cent) than do either Whites (31.5 per cent) or Hispanics (33.9 per cent). There are large differences in home ownership rates among the ethnic groups. Eighty0one per cent of White retirees own their homes, whereas only 69 per cent of Blacks and 66 per cent of Hispanics do. For all three groups, more retirees own their homes without a mortgage than those with a mortgage. White retirees spend 2.3 per cent of total expenditures on household operations, whereas Blacks spend 1.4 per cent and Hispanics 1.1 per cent".(Table 2) Transportation "Black retirees spend about half the share of the other two groups on new cars and trucks. However, they spend more on used cars and trucks. Retired Whites spend a greater share of total expenditures on public transportation 1.7 per cent, than the other two groups, which each spends about 1.1 per cent. Public transportation includes not only intra-city mass transit but also airline fares, taxi fares, and inter-city bus and train fares. Blacks allocate a larger share to electricity, telephone, and other utilities (12.8 per cent) than do other race/ethnic groups".(Table 2) Health Care "Health care is the fourth largest expenditure for all retired consumer units after housing, transportation and food, and accounts for 11.2 per cent of total expenditures. Additionally the retiree market size as reported by Market Research Report, in a study 6 done on the U.S. Mature Market, places this market potential at "$92 Billion"(MRR). This may be due in part to "the increase of out-of-pocket insurance premiums because their employer may no longer cover them. Further, expenses for prescriptions drugs, medicare payments, and medical services increase at retirement because older people require more health care goods and services, on average. Hispanic retirees spend about 3.1 per cent if their total expenditures on medical payments. Blacks and Whites spend less (2.3 per cent and 2.8 per cent, respectively) White retirees spend a larger percentage of their expenditures (1.5 per cent) on medical services than do Blacks (0.7 per cent) and Hispanics (1.1 percent)" (Table 2) Discretionary Spending "White retirees allocate a greater percentage (3.4 per cent) of their expenditures on household furnishings and equipment - - which includes furniture, flooring, and appliances - - than do Blacks or Hispanics, who each allocate about 2.7 percent of their total. Black retirees allocate a larger sum to electricity, fuel, and utilities"(Table 2) Entertainment "Retired whites allocate more of their expenditure (3 per cent) to entertainment than do the other groups, which each allocate about 3 per cent. Whites allocate about 1.6 per cent to fees and admissions, whereas Black and Hispanic retirees allocate about half of that (0.8 per cent) In contrast Black retirees spend more on TV, radio, and sound equipment. White retirees, however, allocate a larger share to food away from home than the other two groups. They also spend a larger share on alcoholic beverages than do the other two groups, and Black retirees spend the least".(Table 2) The beverage industry 7 projects the mature market to be in the area of $86 billion. (Market Research Report) Table 2. Expenditure levels and shares of total expenditures for retired White, Black, and Hispanic consumer units. White Black Hispanic ITEM level share level share level share Average Annual Expenditure $26,341 100.0 18,154 100.0 18,305 100.0 Food 3,974 15.1 3,244 17.9 3,754 20.5 Food at home 2,963 11.2 2,772 15.3 3,196 17.5 Food away from home 1,012 3.8 472 2.6 558 3.0 Alcoholic Beverages 182 0.7 75 .4 98 .5 Housing 8,298 31.5 6,396 35.1 6,198 33.9 Shelter 4,639 17.6 3,281 18.1 3,539 19.3 Owned dwellings 3,062 11.6 2,027 11.2 1,951 10.7 Rented dwellings 1,126 4.3 1,157 6.4 1,479 8.1 Other Lodging 451 1.7 97 .5 109 .6 Utilities, fuels, and public services 2,145 8.1 2.328 12.8 1,989 10.9 Household Operations 628 2.4 280 1.5 197 1.1 Household furnishings and Equip. 886 3.4 488 2.7 473 2.6 Apparel and Services 821 3.1 701 3.9 642 3.5 Transportation 4,544 17.3 2,921 16.1 3,497 19.1 Vehicle Purchases 1,888 7.2 1,061 5.8 1,362 7.4 New Cars and Trucks 1,073 4.1 345 1.9 946 5.1 Used Cars and Trucks 815 3.1 716 3.9 416 2.3 Gasoline and Motor Oil 706 2.7 520 2.9 703 3.8 Other vehicle expenses 1,058 5.7 1,142 6.2 1,231 6.7 Public transportation 442 1.7 198 1.1 201 1.1 Health Care 3,015 11.4 1,732 9.7 1,698 9.3 Entertainment 1,307 5.0 560 3.1 579 3.2 Personal Care Products & Svcs. 284 1.1 260 1.4 197 1.1 Reading 190 .7 85 ,5 70 .4 Education 110 .4 67 .4 35 .2 Tobacco & smoking supplies 170 .6 168 .9 114 .6 Miscellaneous 626 2.4 358 2.0 224 1.2 Cash Contributions 486 1.8 171 .9 90 .5 Personal Ins. & Pensions 785 3.0 735 4.1 703 3.8 Life & Other Personal Ins. 367 1.4 411 2.3 258 1.4 Pensions & Social Security 418 1.6 324 1.8 445 2.4 Source: Pierre Bahizi, Retirment Expenditures for Black, Whites and Hispanics 8 Hispanic retirees spend a larger percentage of their expenditures on food, shelter (rent), transportation, and medicare payments. Blacks spend a greater share of their expenditures on utilities, used cars, personal insurance, personal care products, apparel, and tobacco products. White retirees spend a greater share of their expenditures on food away from home, house furnishings, health insurance, entertainment, and public transportation. There is no doubt that the retiree consumption is extremely active and represents a viable entity within the general market framework. When the retiree consumerism levels are standing independently of the general market, we find a consuming public which fuels the American economy to the tune of $1 trillion annually. Current population statistics state that this group is comprised of more than 58 million people and the conservative estimates are that the number will increase to more than 75 million in the next two decades. It is reasonable to assume that with the many advances in modern medicine, that life expectancy will be further enhanced and the resulting numbers will be even better.. The notion that the retired consumer does not contribute to the economic well- being and continued expansion of the economy is certainly not borne out by the numbers presented. The retired consumer is just as viable an entity as they were during their years if child-rearing and active employment. They have not stopped buying, it is just that retired, empty nestor household does not require the emphasis to be in the same items which were needed to maintain employment and rear children. For example, the need for a car may no longer be necessary, nor may it any longer be practical. This prompts the 9 individual to rely more on public transportation. Also, since one is no longer employed, there is no longer the need for a clothing allowance, and because there are no kids, the clothing allowance also decreases. Additionally, since there are no longer children in the household, the manner in which the retiree receives their meals also takes on a different. Given the numbers, food is one of the most prominent expenditures. Albeit the supermarket does not receive this entire outlay, does not mean that retirees are missing meals. The reality is they have adjusted their lifestyles and are eating out more often. Works Cited Bahizi, Pierre, Retirement Expenditure for Whites, Blacks and Hispanics, accessed on line on November 27, 2006, from www.findarticles.com Retirement Spending Changing needs during the retirement period, Accessed on line on November 27, 2006, from www.mrrc.lsr.umich.edu Rubin, R., and Koelin, K., Elderly and non elderly expenditures on necessities, Monthly Labor Review, vol. 19, 1996, Accessed on line on Novenber 27, 2006, from www.questia.com Sharpe, D. et al, "Household out of pocket health care expenditure trend 1980-95 volume 25 issue 2 page 114, June 2001, Accessed on line on November 27, 2006, from www.blackwellpsynergy.com The United States Market: Market Research Report, Accessed on line on November 27, 2006, from www.marketresearch.com United States Statistical Abstract, United States Census Bureau, Accessed on line on November 27, 2006, from www.usstatsabstract.gov Read More