The evolution of consumption: the French example

THE INCOME/AGE/GENERATION MODEL

An econometric model that projects consumption of each category of item – i.e., by calculating budget coefficients – has been developed to explain the distribution of household spending according to age, generation and income effects.

The age effect

This reflects variations in consumption at different stages of people’s lives: young people spend a large proportion of their budget on education and equipment, while older people spend more on health and savings.

The generation effect

This captures the structural differences specific to each cohort, which are linked to historical or cultural factors, such as digital habits or food preferences, and have a lasting influence on their behaviours.

The income effect

This describes the way in which households allocate their resources according to their standard of living, in accordance with typical budgeting rules (e.g., Engel’s law, which states that as income increases, the percentage spent on food decreases).

This econometric model uses cross-cutting historical panel data from consumer surveys (in this case, the INSEE’s annual national accounts and family budget surveys) to analyse these relationships

By focusing on long-term structural trends, these coefficients allow future budget allocation to be projected, taking into account demographic changes (population aging) and changes in income distribution (neutralized in this case). This type of model is particularly useful for anticipating long-term consumption shifts in a developed economy.

LIMITATIONS OF THE MODEL

The model’s coefficients are defined according to the age, generation and income variables, without considering period effects such as economic cycles and macroeconomic shocks, which generate variations in the relative prices of goods or fluctuations in income by class, as well as variations in supply strategies, regulations, technological breakthroughs, etc. Using expert hypotheses to take these factors and period variables into account allows alternative consumption scenarios to be established item by item based around the structural age-income-generation trend.

Classification of unavoidable and discretionary expenses

The budget coefficient of an item represents the proportion of total consumption that is spent on that item.

Committed expenses

According to the INSEE definition, committed expenses are household outgoings governed by a contract that would be difficult to renegotiate in the short term. These expenses display the lowest price elasticity (demand for such items holds up when prices rise).

They include the following expense items:

– Accommodation expenses, as well as those relating to water, gas, electricity and other fuels used in homes.

– Telecommunications services.

– School canteen costs.

– TV services (TV licence, subscription to paid channels).

– Insurance (excluding life insurance).

– Financial services (excluding life insurance).

In order to factor in social constraints that are not classed as contractual commitments, convention dictates that essentially unavoidable expenditure items must be added to the committed expenses category. These include:

– All communication expenses.

– Healthcare expenses.

– Education expenses.

Discretionary expenses and leisure expenses

Any remaining expenditure is split between leisure expenses and optional expenses, also known as discretionary, which households can choose between.

Discretionary expenses include:

– Personal effects and care products.

– Transport.

– Furniture, housewares and day-to-day household upkeep.

– Clothing and footwear.

– Food and non-alcoholic drinks.

Leisure expenses include:

– Hotels, cafes and restaurants.

– Leisure and culture.

– Alcoholic drinks and tobacco.

Other expenses include:

– Social protection.

– Life insurance.

– Other services.

KEY DATA

9 out of 10 Europeans would consider consuming less

3 in 4 would be prepared to consume differently

4 out of 10 buy more reconditioned goods than they did 10 years ago

1 in 2 are happy to buy products made far from where they live

2 in 3 attach little or no importance to brands

4 out of 10 make more non-material purchases than 10 years ago