Economic Report President

well-being is that families have different needs, depending on thenumber of people in the family, their ages, where they live, and soon. Thus, an income that would seem generous to one family mightbe barely adequate for another. A third weakness of the incomemeasure is that some economic goods do not have an easily quantifiablemonetary value and are therefore not recorded as income. Mostimportant for the elderly, home ownership and medical insurancecertainly increase well-being, yet they are not captured by measuringbefore-tax money income. As a result, two families with identicalincomes and identical needs could have very different economic status:one might, for example, own a valuable home and have generousmedical insurance coverage, whereas the other rents an apartmentand has no insurance.Because of these weaknesses, three other sets of indicators ofwell-being are examined here in addition to income: the povertyrate, indicators of wealth accumulation (including home equity),and indicators of health status. The poverty rate adjusts differencesin income across families for disparities in family size and composition.Wealth provides a cushion for people to smooth their consumptionover time and creates a buffer against adversities, such ashealth problems, that may require substantial expenditure. Finally,earlier in this chapter changes in health status and life expectancywere examined, which are also important measures of well-being.Most of the national data used to examine families’ economic statusare based on surveys of the noninstitutionalized population. This limitationis not of great importance when examining older workers, oreven all persons over 65—only 5 percent of the elderly live in an institution(typically a nursing home). However, the proportion of institutionalizedelderly rises sharply with age, to almost one-fourth of allpersons 85 and over. Older persons in institutions typically have feweconomic resources and are in poor health. Therefore, findings fromsurveys of the noninstitutionalized population will not necessarilyapply to the oldest old. Box 4-6 examines changes in living arrangementsof the elderly during the 20th century, with a focus on widows.INCOME AND CONSUMPTIONThe Three-Legged StoolEconomic security in old age is often described as a three-leggedstool, the legs being Social Security benefits; income from accumulatedassets, including savings and home ownership; and pension income.But the notion of a stool with three legs of roughly equal size is misleading.The importance of each source of income varies tremendouslyamong the elderly—many Americans depend almost entirely on SocialSecurity, for example. In addition, for many elderly households labormarket earnings provide a fourth leg to the stool. Moreover, the153