Choices of the Hand-to-Mouth-to-the-Eye

Mark Aguiar, Corina Boar and Mark Bils
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Mark Aguiar: Princeton University
Corina Boar: Princeton University

No 273, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: The spending choices of those who consume hand-to-mouth should, conditional on in- come, be relatively routine and predictable. Based on data from the Panel Study of Income Dynamics and Consumer Expenditure Surveys, we show this is not the case for households the literature has treated as most likely hand-to-mouth. Those with little wealth, or little liquid wealth, relative to income: (1) display more volatile expendi- tures, even adjusting for their income ow, (2) shift expenditures more dramatically across spending categories, (3) spend on fewer categories than other households with similar total expenditures. Based on these ndings, we entertain that such households, those ostensibly hand-to-mouth, dier in objectives from households that exhibit more savings and liquid wealth. Less diminishing returns in consuming can explain these three features of spending by low-wealth households. It can also partly explain why such households display lower savings and, especially, lower liquid savings -- that is, these households' elastic preferences yield choices that add to their appearance as hand-to- mouth.

Date: 2018
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