The Wealthy Hand-to-Mouth

The wealthy hand-to-mouth are households who hold little or no liquid wealth (e.g. cash, checking, and saving accounts), despite owning sizable amounts of illiquid assets (i.e., assets that carry a transaction cost, such as housing, large durables, or retirement accounts). This portfolio configuration implies that these households have large marginal propensities to consume out of small income changes –a key determinant of the macroeconomic effects of fiscal policy. The wealthy hand-to-mouth, therefore, behave in many respects like households with little or no net worth, yet they escape standard definitions (and empirical measurements) of hand-to-mouth agents based on net worth. We use survey data on household portfolios for the U.S., Canada, Australia, the U.K., Germany, France, Italy, and Spain to document the share of such households across countries, their demographic characteristics, the composition of their balance sheet, and the persistence of hand-to-mouth status over the life cycle. Finally, we discuss the implications of this group of consumers for macroeconomic modelling and policy analysis.