The Wealthy Hand-to-Mouth. Greg Kaplan, Princeton University, NBER, and IFS; Giovanni L. Violante, New York University, CEPR, NBER, and IFS; Justin Weidner, Princeton University

“The wealthy hand-to-mouth are households who hold little or no liquid wealth (cash, checking, and  savings accounts), despite owning sizable amounts of illiquid assets (assets that carry a transaction cost, such as housing or retirement accounts). This portfolio configuration implies that these households have a high marginal propensity to consume out of transitory 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 based on the distribution of 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 sheets, and the persistence of hand-to-mouth status over the life cycle. Using PSID data, we estimate that the wealthy hand-to-mouth have a strong consumption response to transitory income shocks. Finally, we discuss the implications of this group of consumers for macroeconomic modeling and policy analysis.”