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Column: Special price index benefits elderly, other defined groups

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Each year consumers cooperate with the U.S. Bureaus of Labor Statistics and the Census to report how we spend our money. According to the 2011 Survey of Consumer Expenditures, our 122 million households spent $6.1 trillion or nearly $50,000 per household.

How much we spend and what we buy depends on many factors. Not the least of these factors is age. As we pass through time, our family circumstances change, leading to different income levels, and our personal needs alter our spending patterns.

A household headed by a person 45 to 54 old spends about $58,000 per year while the household headed by a person 25 to 34 spends in the neighborhood of $48,000. Those in households of persons 65 and older spend $39,000 per year.

The differences in households by age can be seen in many spending categories. Food eaten at home accounts for 7.2, 7.6, and 8.4 percent, respectively, of the expenditures by households in the 25-34, 45-54, and 65-plus groups.

The influence of age in spending patterns is most clearly seen in the health care sector. Households with people 65 and older account for 21 percent of all households, yet they represent 30 percent of all health care spending. This age group buys 34 percent of health insurance, which is a $235 billion market. (These figures exclude purchases of health insurance by employers.)

As we have learned in national discussions about health care, the percentage of household spending for health care rises with age. That percent is 4.4 for the 25-34 age group, 5.9 for those 45-54 and rises to 12.2 percent for those 65 and older.

We also have learned that health care prices often, but not always, rise faster than the general level of prices as represented in the Consumer Price Index. It is no wonder then that groups (such as the American Association of Retired Persons — AARP) seek to have the price index redefined for use with Social Security, Medicare and other programs for older citizens.

Ironically, there are members of Congress who wish to use a variant of the price index that would reduce the growth of benefits for older Americans. In a state like Indiana, with a poorer and older population than the nation in general, using a lower price index growth factor would put a squeeze on consumer spending and retail trade.

All of which raises a more fundamental question: Should there be different consumer price indexes for different groups?

Veterans, for example, might have different spending patterns from the general public. Persons with disabilities may reasonably have recognizable variations in their purchases. Single parents, college students, Cubs’ fans — there might be no limit to the fracturing of the population we could devise.

Ultimately, each household is unlike the average household, but it would seem foolish to advocate 122 million price index computations. That extreme, however, does not invalidate separate calculations for substantially large groups with clearly differentiated spending patterns.

Morton Marcus is an economist, formerly with the Indiana University Kelley School of Business.

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