Saturday 6 August 2016

Golden spending in the silver years

By Sumit Agarwal, Jessica Pan, and Qian Wenlan, Published The Straits Times, 5 Aug 2016

A familiar fact of life is that expenditures rise as we enter into working adulthood, spurred in part by our need to live well, supported by higher disposable income. However, when we retire into our grey years, there is no more active monthly income generated to fund such expenditure.

In fact, research demonstrates that if we track the life cycle consumption of an individual, it follows a "hump" shape with expenditure peaking in middle age and then declining in the years that follow.

While it is not surprising that retirement curtails expenditure, what is more insightful is an understanding of whether the decline in consumption is consistent across the basket of goods and services. This will bear implications on, say, how to help retirees cope with their silver years - something critical in an ageing society like Singapore; or what businesses are likely to thrive for this burgeoning pool of retirees.

Using financial transactions of 180,000 customers from a leading bank in Singapore between April 2010 and March 2012, we compared how Singaporeans spend across different age groups. Besides monthly statement information on checking account and credit/debit card spending, the data also furnished information on expenditure across product categories.


Singaporeans follow the typical hump-shaped life cycle consumption pattern observed in past research. However, we observe that the life cycle pattern of spending across different product categories differs.

In particular, post-middle age Singaporeans spend much less on apparel/small durables, dining and entertainment/services than their younger counterparts.

However, although their supermarket spending and transportation/travel are less than younger Singaporeans', the difference is modest.

Examining credit card and debit card spending separately across age groups reveals that while monthly credit card spending exhibits the predictable hump-shaped pattern, debit card spending is largely the same across Singaporeans under 50 years old.

But those aged 50 to 70 spent more on their debit card than those under 50. Older Singaporeans appear to be shifting their mode of payment from credit card spending in their earlier years to an increasing reliance on debit card spending in their later years.


To see how retirement affects our consumption, we paired each retired individual in our sample with a similar non-retired individual based on observable characteristics such as age, race, gender, marital status, income, account balance and housing type. We then compared how consumption differs between the retired and matched non-retired individuals.

On average, the retired Singaporean spends 12 per cent less each month compared to the matched non-retired individual.

But this effect of retirement on consumption varies considerably across product categories. The largest decline is in travel and transportation, but the other categories such as supermarket shopping, dining, entertainment and services remain unchanged.


However, such card spending may mask reality as cash expenditures are not accounted for. Thus, we used a second dataset involving detailed panel survey data on consumer grocery spending from January 2008 to December 2010 for 371 Singaporeans.

This provided rich information on grocery spending, including shopping venue, the number of items purchased in each shopping trip, and detailed product-level purchase information such as price and brand.

We find that home food purchase also exhibits the familiar hump-shaped pattern, that is, the dollar amount spent on food declines as one approaches retirement. Strikingly, there is little evidence that older Singaporeans buy fewer items than younger Singaporeans. Regardless of whether they are working or retired, they buy the same number of food items.

However, the composition of the food items differs. Older Singaporeans spend relatively more time shopping than younger Singaporeans. They spend more on food at the fresh market and on store brand products. Their expenditure on high-end supermarket and on store brand products was less than younger Singaporeans, suggesting that there is a substitution - as we retire and have more time, but less disposable income, we substitute higher price items with cheaper alternatives that require more time spent in purchasing.

Our findings on food expenditure suggest that demand for fresh produce will rise as more Singaporeans retire.

Our pasar or wet markets will need to be spruced up as not only are more retirees likely to shop there, but they are likely to be there for longer periods of time, or more frequently with smaller purchases each time. Wet markets should therefore ensure floors are not slippery and precautions are installed for safer and easier navigation. The possibility of home delivery is also not inconceivable.

Store brand products are to be encouraged as they provide the affordability benefit that retirees look for. Supermarkets such as FairPrice are heading in the right direction, with more house brands from toilet paper to cleaning detergents offered.

Senior citizens still buy the same number of food items as before. However, with less disposable income, they spend less, on average by 12 per cent compared to those still working. For retirees in the lower income bracket, they are likely to be the hardest hit with a greater reduction in expenditure.

Policymakers may consider providing some subsidy to help senior citizens tide over retirement, particularly those in the lower income group. Our findings were discussed with policymakers involved in the Silver Support Scheme, which announced that the Government is giving the bottom 20 per cent of retirees quarterly cash subsidies up to $750.

While giving cash disbursements on a regular basis to the worst hit is one option, there are alternatives. The goods and services tax may be waived on necessities that retirees buy or retirees may be given a special discount card.

Finally, the present credit card rules requiring a minimum income may need to be relaxed, so retirees can make use of credit cards and carry less cash, making them less vulnerable to robbery.

And especially for those who are more tech savvy, the current trend towards smartphone payments such as Apple's Wallet may engender policy changes regarding credit card eligibility for senior citizens.

Sumit Agarwal is Low Tuck Kwong Professor of finance at the National University of Singapore Business School where Qian Wenlan is an associate professor of finance. Jessica Pan is assistant professor of economics at NUS.

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