Economist Mike Walden: Wealth Effects

Economists argue there are numerous relationships between various types of economic and financial factors.  One of these has to do with the relationship between consumer spending and different kinds of wealth.

  1. people accumulate wealth in investments like stocks, CDs, and even homes
  2. wealth can be tapped for spending by drawing from it, borrowing against it,                or simply saving less
  3. we call the relationship between wealth and consumer spending the “wealth                effect”
  4. over the decades, economists have tried to ascertain if there is a wealth effect       and – if so – its size
  5. findings, of course, differ, but many studies have found wealth effects for                stocks and housing values
  6. range between 4% and 7% – meaning a $1 change in wealth will cause a 4-cent to 7-cent change in spending in the same direction