Wealth Effect

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According to Wikipedia, wealth effect is the change in spending that accompanies a change in perceived wealth.  Usually the wealth effect is positive: spending changes in the same direction as perceived wealth.

People typically spend more overall when one of two things occur:  when people actually are richer, or when people perceive themselves to be better off, for example, when the apparent value of their house increases or their investments accrete.

Increased spending can translate into greater quantity and/or higher quality.

Investors can track potential future consumer decisions by following government reports relating to average hourly earnings, consumer spending and employment.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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