Research sheds light on how spending on health care, gifts, and travel change with old age
A working paper from the University of Michigan's Michigan Retirement and Disability Research Center suggests that people may become less interested in spending money on various activities as their health deteriorates, they become widowed, or they get older.
The research found people tend to spend less money as they get closer to retirement but still feel more financially satisfied than their younger counterparts, suggesting that older adults spend less money as their interest in hobbies declines, reported ThinkAdvisor.
According to data from the study published in June, the majority of older people aren't being forced to cut spending as a result of their spending and saving habits from years earlier.
The researchers from the RAND Corp., the Network for Studies on Pensions, Aging and Retirement, and the National Bureau of Economic Research used new data from the 2019 wave of a consumption and activities mail survey of people over 50 to interpret and reconcile the decline in spending and greater financial satisfaction in older age.
The percentage of survey participants who are satisfied with their financial situation was significantly higher at older ages than for those who are close to retirement age, and more survey respondents in their 80s reported feeling no or few financial constraints compared to younger survey participants.
“Nonetheless, close to 20% of those older than 80 report not being satisfied with their financial situation, pointing to heterogeneity in economic security,” the authors wrote.
The authors presented evidence suggesting that as people age, their spending on activities like travel that depend on good health decreases in favour of health care and other "substitutes."
They found that trips, vacations, and private transportation—mostly cars—combine to account for about 20% of all spending among people aged 65 to 69. These purchases make up 10% of the total at ages 85 to 89, according to the authors.
Additionally, the researchers gathered survey data on people's perceptions of changes in their enjoyment of various activities to get direct support for their hypothesis that health and other aging-related factors are crucial to a spending decline at older ages.
Patterns in average scores on seven activities, including eating out, traveling, and shopping for clothes, exhibited a decline in enjoyment over a six-year period, and that the decline speeds up with age.
The group found that as people age, their levels of financial satisfaction rise, reaching almost 45% for people over the age of 80. The percentage of dissatisfied people falls from almost 45% among those aged 55 to 59 to under 20% by the time they reach 80 years old.