The Effects of the Financial Crisis on Actual and Anticipated Consumption

Published: 2011


We studied how households adjust their spending in response to the financial crisis. Based on five waves of data from the Consumption and Activities Mail Survey, we quantified the reduction in total consumption and in specific categories of consumption in the older population at large and by stock ownership, both as a proxy for wealth and to test assumptions about whether stock ownership was associated with different responses. In particular, we compared consumption changes between 2007 and 2009 with consumption changes over prior years. We used panel data on anticipated changes in spending at retirement to quantify the effects of the financial crisis on well-being in retirement via a difference-in-differences approach.

Key Findings

    • Among 50-65 year olds, household-level spending declines attributable to the recession ranged between 3.5 percent and 7.0 percent.
    • For those over the age of 65, the spending declines were smaller, about 2.4%.
    • In both age groups, stock owners experienced larger spending declines than those not owning stocks.
    • The declines were concentrated in big ticket items (-7.3 percentage points), dining out (-15.9 percentage points), and housing (-8.5 percentage points).
    • Older households (age 66+) showed greater spending declines in food eaten at home, clothing, and household supplies and services than those age 50-65. However, the older age group increased donations and gifts, unlike the younger age group (+12% vs. -2.0%), possibly because of the need to help support younger family members.