Household Consumption and Savings over the Life Cycle: The Roles of Demographics and Durables

Neha Bairoliya, Areendam Chanda (), Jingyi Fang () and Fang Yang
Additional contact information
Areendam Chanda: https://faculty.lsu.edu/achanda/
Jingyi Fang: https://www.minneapolisfed.org/about-us/careers/quantitative-fellowship-program/current-fellow-profiles

No 2537, Working Papers from Federal Reserve Bank of Dallas

Abstract: The canonical prediction of life-cycle models, that individuals smooth consumption over their lifetime, has mostly been tested in developed countries and found little empirical support. We provide a novel developing-country perspective by analyzing patterns of life cycle consumption, income, and savings rates in India. In contrast to the U.S., Indian households exhibit little growth in nondurable consumption expenditures after adjusting for family size. Surprisingly, this flat adjusted profile coexists with substantial income growth and a sharp rise in the savings/surplus rate over the life cycle. We show that lumpy non-housing durable accumulation is an important use of this life-cycle surplus, helping reconcile high savings rates with flat measured adult-equivalent nondurable consumption. Quantitatively, non-housing durable stock growth accounts for about one-third of accumulated life-cycle surplus by age 45, and an augmented expenditure profile that adds imputed non-housing durable investment flows to nondurables raises adult-equivalent life-cycle growth from 8.4% to 27.9%.

Keywords: consumption; savings rate; demographics; life-cycle; durables; asset accumulation; household heterogeneity; panel data; pseudopanel; equivalence scales (search for similar items in EconPapers)
JEL-codes: E21 J10 O11 (search for similar items in EconPapers)
Date: 2025-10-14, Revised 2026-06-15
New Economics Papers: this item is included in nep-fdg, nep-inv and nep-sea
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DOI: 10.24149/wp2537r1

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