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Office of Survey Methods Research
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Published Year: 1996
Survey/Program(s): Survey of Income and Program Participation (SIPP)
Catalog: Statistical Survey Paper
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Affordability, Income Adequacy, and Subjective Assessments of Economic Well‐Being: Preliminary Findings
Abstract
Affordability and income adequacy perceptions are subjective assessments of one's or one's family's economic well-being, and thus can be considered psychological manifestations of some underlying economic variable. Both concepts deal with economic means to purchase or achieve some goal, given a budget constraint and beliefs about one's budget constraint. Thus affordability and income adequacy can serve as links in economic-socio-psychology models of attitude-intention behavior (see van Raaij 1996) . While affordability generally can be defined as the ability to purchase some commodity or to achieve some particular level of living, income adequacy is likely to reflect one's ability to met some basic need or reflects some belief about some basic income or other resource necessary to achieve a particular level of living. Whether someone thinks his/her household's income is adequate to meet basic needs, for example, is another way of saying that the individual thinks the household can afford to meet these needs. Within the choice set, the individual will make decisions about what the goal is, the quantity to purchase, and the quality. Affordability and income adequacy are different from willingness to pay or to buy; with willingness the issue is if the individual wants to make the purchase, for example, not if he/she has the means or thinks he/she has. If the individual thinks he/she can afford some commodity or has adequate income to purchase some commodity, then we assume that his/her economic well-being is higher than the economic well-being of someone who cannot afford or does not have adequate income to make the purchase.
Subjective assessments of economic well-being and income, in particular, are not new constructs of interest in social analysis. As early as 1881, economists recognized that the utility or economic well-being gained from any given commodity was not always independent of the consumption of other goods. For example, the value of butter may be dependent upon one's ownership of bread. Likewise, the value of a right shoe may be dependent upon one's ownership of the matching left shoe. Along the same vein, the value of one's income may, in fact, be tempered by the amount of one's expenses or by the particular configuration of commodities that one already owns. For example, a very small income may be adequate if one already has a home that is paid-off or a garden in which to grow food.