China's Aging Population, Income, Consumption And Savings Study

With a declining birthrate and a growing life expectancy, China became an agingsociety in2000. The rapid development of population aging is one of the mostimportant phenomenons that China faces now and has gained much attention. Underthe frame work of Life-Cycle Model (LCM), this thesis gives a detailed empiricalanalysis of the economic behavior of Chinese urban elder people.In this thesis, we first analyze how the level of income, consumption, saving andwealth-holding change with age for the unban elderly. This thesis makes it clear thatcross-section analysis of the life cycle changes of income, consumption, saving andwealth-holding can be misleading since cross-section analysis has neglect the cohorteffect of elder people born in different years. As an improvement, we take theadvantage of repeated sampling of the same population and use the method of cohortanalysis to study the life cycle changes of income, consumption, saving andwealth-holding of elder people. Basically, this thesis finds that income, consumptionand wealth-holding of urban elderly are all increasing with age. This means mosturban elder people have benefitted from China's rapid economic growth.On the other hand, this thesis also finds that contrary to what standard LCM haspredicted, many elder people still keep a positive saving level after retirement. Onepossible explanation for this phenomenon is the existence of uncertainty. Theoreticalstudy has demonstrated that uncertainty will cause consumer to lower currentconsumption and to increase precautionary saving rate. For elder people, futuremedical expense is one of the most important sources of uncertainty they may face.Empirical analysis shows that the worry of future medical expenditure has causedurban elder people lower their consumption level and increase their saving rate. Thisthesis also finds that the elderly with more children tends to consume less and savemore. So, this may mean that bequest motive do have some effect on elder people'sconsumption/saving behavior.Besides, this thesis has also analyzed the effect of retirement on elder people'sconsumption behavior. The results show that there is a discontinuous decline ofconsumption expenditure at the time of retirement. To study what has caused this decline, this thesis further analyzes the effect of retirement on the expenditure ofdifferent goods, and we find that most of the decline is caused by job-relatedexpenditure. This means consumption decline at the time of retirement may not becaused by unexpected negative income shock. Retirement has no effect on subjectivewellbeing gives evidence against the "negative income shock hypothesis" from adifferent perspective.