Consumption patterns among aging Canadians

The study of consumption over the life cycle is complicated by the fact that expenditure and consumption information is typically collected on a cross-sectional basis. One way around this challenge is to use a synthetic cohort approach, whereby a number of key social and economic characteristics known for varying across cohorts can be taken into account (LaRochelle-Côté et al. 2010). This approach is based on the assumption that people, say, 70 years of age in a survey collected in 2010, are deemed representative of those age 40 in a similarly designed survey in 1980. This study uses a synthetic cohort approach to generate information about the consumption patterns of a cohort of aging Canadians (see Data source and selection of a synthetic cohort). This paper also discusses consumption changes in relation to changes in household income, and examines whether consumption became more or less unequal as the cohort aged. The dispersion of income and consumption can be measured in different ways. A widely used measure of dispersion, the P90/P10, is the ratio of the consumption (or income) of the household located at the 90th percentile divided by the consumption (or income) of the household located at the 10th percentile. A P90/P10 ratio of 3.0, for instance, would indicate that a household located at the 90th percentile consumes 3 times as much as a household located at the 10th percentile. A similar measure, the P75/P25, uses households located at the 75th and 25th percentiles. A third measure, the mean absolute deviation (MAD), is the typical deviation, in percentage terms, of a household's consumption from the average consumption level. For instance, if a MAD of 0.2 is found, this means that households typically deviated from the mean by 20%. The main source of consumption information is the Survey of Household Spending (SHS). The SHS has been conducted on an annual basis since 1997, collecting detailed information on the income and expenditures of 10,000 to 20,000 households, depending on the year. Before 1997, consumption information came from another survey: the Survey of Family Expenditures (FAMEX). Although FAMEX and the SHS differ in some respects, similarly defined consumption and expenditure categories can be obtained at the aggregated level with both surveys.' Because FAMEX and the SHS cover nearly four decades of expenditure information among Canadian households, it was possible to derive a synthetic cohort of aging households categorized on the b