What is the estimated propensity to consume out of wealth, and how does it depend on income levels?

Question

What is the estimated propensity to consume out of wealth, and how does it depend on income levels?

To make sure we are talking about the same thing: I am asking what estimates we have on what percentage of their wealth people turn into spending (on pure consumption - not investment) annually. And I want to know how it depends on income levels. Do poor people have a higher percentage than others, since otherwise they'd starve? Do middle income people have a higher or lower percentage than high income people? And how big is that difference, if it exists?

Answer 1

This is the "wealth effect". It has been shown empirically that as one's assessment of their wealth increase, the more they spend. An important point to be made is that this may be disconnected from actual wealth. If you are counting on a big inheritance that may lead you to spend a higher % of your wealth now in expectation of the future payoff.

There's a good paper that empirically looks at the correlation between wealth and spending but it's important to understand that the factors that influence an individual to spend money are numerous and it's virtually impossible to completely remove the signal from the noise.