Human Wealth Span
The human wealth span is a model of accumulation and consumption of resources over one’s life. Developed by Davis W. Gregg (1992), it builds on the successful aging concept and Modigliani’s life-cycle saving-dissaving hypothesis. According to this model, the human life span consists of two major stages: wealth accumulation and expenditure. During the former, individuals accrue financial and material resources, which are then consumed during the latter. The human wealth span model is also associated with the health dimension of successful aging as a factor affecting one’s income-earning opportunities and the possibility to continue productive work in old age.
Furthermore, individuals usually need to bear some costs of staying healthy, including health care or long-term care expenses. In line with Modigliani’s hypothesis, the wealth span model posits that wealth accumulation and expenditure patterns change over the individual’s life cycle. Capital is accumulated in young and middle age and is then consumed in retirement when individuals no longer work. Furthermore, it should be noted that wealth span patterns evolve with social and cultural changes and differ between generations (cohorts). Currently, individuals tend to enter the labor market later in life and leave it earlier, which influences their ability to accumulate capital and the time over which they will be utilizing it.
History of the Human Wealth Span Model
The concept of the human wealth span was formed by David W. Gregg and then promoted by Neal E. Cutler (2003), who emphasized the need to take a broader perspective on the finances of aging individuals and their families. One of the main ideas was to incorporate economic concerns, including capital accumulation, into mainstream gerontology. In addition to publications on the wealth span, a milestone in the development of this field was the 1996 Encyclopedia of Financial Gerontology edited by Lois Vitt and Jurg Siegenthaler (1996), which not only dealt with financial theory but also discussed practical aspects, such as household savings, as well as the costs of health insurance, health care, and long-term care. It should be noted that since their inception, both the wealth span model and financial gerontology have combined academic and practical dimensions with a focus on education to raise financial awareness and skills among aging individuals and their families. Another significant publication that significantly contributed to this multidisciplinary approach combining gerontology and finance was the Encyclopedia of Retirement and Finance edited by Lois Vitt (2003), which placed an even greater emphasis on the practical and educational dimensions of financial gerontology and the need to popularize knowledge about these issues. The practical aspects of the accumulation and expenditure stages of the life cycle are presented in Neal E. Cutler’s (2002) book Advising Mature Clients: The New Science of Wealth Span Planning, which discusses finances through the lens of the four dimensions of aging: individual, population, family, and generational. In line with the practical aspects of the wealth span approach, the book contains practical recommendations concerning the accumulation and expenditure stages, for example, encouraging the formation of saving habits early in life.
Theoretical and Practical Dimensions of the Human Wealth Span
Gregg and Cutler founded their human wealth span model on Modigliani’s saving and dissaving life-cycle theory and the health and wealth dimensions of successful aging (Rowe and Kahn 1997). Combining these two lines of research, they proposed an innovative approach to accumulating financial resources and utilizing them later in life. The new model was innovative in that it placed greater emphasis on capital accumulation in the earlier phases of the work cycle. While financial gerontology posits that it is never too late to start saving, Gregg and Cutler insisted that educational and awareness-raising efforts should be taken to encourage an early start. To the extent that Rowe and Kahn stressed the role of early health behaviors and lifestyle patterns in preserving one’s health and independence in old age, Gregg and Cutler focused on the effects of wealth accumulated earlier in life on one’s economic security and ability to meet one’s needs later on (e.g., purchasing medical and rehabilitation services in the last phase of life) (Cutler et al. 1992; Rowe and Kahn 2015). The human wealth span model also appreciates and incorporates the family perspective, which is reflected in financial gerontology. Indeed, financial decisions are analyzed here not only from the perspective of individuals or populations but also families and households (how they affect family members).
In practical terms, the human wealth span concept provides the basis for the implementation of educational programs aimed at raising awareness about wealth and saving to secure future welfare, especially in advanced old age, when older people can no longer earn an income while facing mounting long-term care expenses. Furthermore, the American Institute of Financial Gerontology was formed with the express purpose of educating professionals in financial services geared toward aging individuals. A primary objective of that research institution was to address the complexity of financial concerns of old age, both in terms of accumulating and utilizing wealth. The need to educate people about financial gerontology arises in connection with the growing population of older adults. Indeed, a more significant number of clients of financial consultants are likely to live to advanced old age and need adequate capital to secure their welfare. Also, more aging people continue to invest their money, realizing that they will need them at an even later time, as they become “the oldest old.” While there is already an increasing population of centenarians and supercentenarians, demographic forecasts indicate the continuation of these trends and an accelerated process of double aging. Thus, a novel approach to the education of financial consultants is needed as financial preparation for advanced old age should begin early in life, possibly involving a variety of investment strategies.
Key Researching Findings
Gregg’s and Cutler’s research on the human wealth span revealed considerable differences between successive generations of workers in terms of the ages of entering and leaving the labor market. Successive cohorts have lengthened the period of education (according to the Eurostat data in the European Union, almost 30% of 30- to 34-year-olds have tertiary education, which implies a delay in taking a full-time job), but not the overall period of employment (Stowe and Cooney 2014). It has been noted that time is a major constraint limiting the accumulation of capital and financial resources. In his studies, Cutler also reported an increase in the number of years lived in old age and a shift in the proportions between the accumulation and expenditure stages of the wealth span (Cutler 2001). As the expenditure stage becomes longer, more individuals need to obtain care services (including institutional care), which often directly affects their families and especially members of the so-called sandwich generation (45- to 65-year-olds who care for their aging parents while supporting their own children by taking care of grandchildren). There has also emerged a “double sandwich generation” as family networks have become more vertical due to the growing percentage of the oldest individuals in need of care combined with declining numbers of younger people. Given greater longevity, the younger generations face the reality of having to support more aging people with varied needs (depending on age) and health problems (Kourouklis et al. 2019). If older adults did not accumulate sufficient wealth at earlier stages of the life cycle, they would require aid from younger persons in the form of either material assistance or personal care provision, putting a strain on the finances or income-earning opportunities of the latter. These intergenerational relationships have both population- and family-level implications, with individual financial decisions having a significant bearing on family members (Muratore and Earl 2015). Gregg and Cutler not only observed shifts in the length of accumulation and expenditure stages over time, but they also noted an increasing complexity of the former (Gregg 1992). In many countries, population aging has led to a transition from defined benefit to defined contribution schemes. One of the functions of additional retirement saving instruments, such as employer-sponsored pension plans, is to show individuals that the value of their pensions and their welfare in old age rests in their hands as state-provided welfare will be insufficient to cover all the needs of the growing population of old and very old people (Emerson and Knabb 2019).
Of importance are also changes in family structure affecting the financial situation of older adults and their households. In the initial stage of old age, when children leave the nest, the parents receive a double pension while still being relatively healthy, but usually, a period of widowhood follows. As a result of the shorter life expectancy of males, single-person single-income households are typically formed by women. Also, women’s pensions are often smaller due to lower pay, maternity-related gaps in contributions, a lower retirement age, and a longer life expectancy. All of the above factors make it challenging to meet the needs of aging individuals, often leading to poverty (especially in the case of women) (Li et al. 2017). The issue of financial stability of last stage of life was one of the research objectives of the project ‘Care for the elderly from the perspective of two generations – the carers and the cared for: Implications for the elderly care system (grant no. UMO-2013/09/D/HS5/04459) financed by the National Science Center’. The project as a whole was designed to identify the care needs of the oldest population group (75 years plus), discern the status quo in terms of family care, and determine the implications following from population aging and family network verticalization for the elderly care system.
Future Directions of Research
Future investigations are expected to focus on changes in capital accumulation and investment patterns depending on the individual’s age. The increasing complexity of the two major stages of the life cycle provides a broad spectrum of research opportunities. The shrinking length of the accumulation stage, the extending expenditure stage, and especially the rapid growth of the oldest population segments necessitate studies in the area of financial provisions for longevity. Given the increasing number of years in retirement, it becomes vital to explore the relationships between healthy life expectancy and retirement age and the effects of the latter on the value of future pensions. Another promising research domain is the point of transition between the accumulation and expenditure stages.
Due to improving healthy life expectancy, the division of the human wealth span into the accumulation stage and expenditure stage should be verified, especially because of their increasing complexity. Furthermore, an ever-larger group of aging individuals experiences a mixed stage, when they receive a pension while still being healthy enough to continue working, which they often have to do in the face of a dire financial situation. Another aspect that becomes increasingly relevant to the accumulation stage is the need to prepare for longevity. Indeed, one should start such preparations ever since entering the labor market in young age, at a time when the first decisions on saving, investing, and wealth accumulation for old age are made. In this respect, the human wealth span has significant ramifications not only as a theoretical foundation but as a basis for developing educational programs for ordinary citizens as well as for finance, investment, and insurance professionals and policymakers.
- Cutler NE (2001) Demographics: increasing longevity and the human wealth span. In: Maddox GL (ed) The encyclopedia of aging: a comprehensive resource in gerontology and geriatrics. Springer, Berlin, pp 397–398Google Scholar
- Cutler NE (2002) Advising mature clients: the new science of wealth span planning. Wiley, New YorkGoogle Scholar
- Cutler NE (2003) Wealth span. In: Vitt LA (ed) Encyclopedia of retirement and finance, vol 1. Greenwood Press, Westport, pp 770–776Google Scholar
- Cutler NE, Gregg DW, Powell Lawton M (eds) (1992) Aging, money, and life satisfaction: aspects of financial gerontology. Springer, New YorkGoogle Scholar
- Emerson P, Knabb S (2019) A demographic headwind: will an aging society reduce the real interest rate and potential growth? J Econ Ageing. https://doi.org/10.1016/j.jeoa.2019.01.004. (in press)
- Gregg DW (1992) Human wealth span: the financial dimension of successful ageing. In: Cutler NE, Gregg DW, Powell Lawton MP (eds) Aging, money, and life satisfaction. Springer, New York, pp 169–182Google Scholar
- Kourouklis D, Verropoulou G, Tsimbos C (2019) The impact of wealth and income on the depression of older adults across European welfare regimes. Ageing Soc (First View) 1–32. https://doi.org/10.1017/S0144686X19000679
- Vitt LA (ed) (2003) Encyclopedia of Retirement and Finance (Volume One), Westport: Greenwood PressGoogle Scholar
- Vitt LA, Siegenthaler JK (eds) (1996) Encyclopedia of financial gerontology. Greenwood Press, WestportGoogle Scholar