Two Views of Lifestyle – An Asset Allocation Viewpoint
Lifestyle is simply the individual’s behavioral attitudes, interests, habits, and behavioral patterns. The word was first introduced by Austrian psychiatrist Alfred Adler in his 29th book, The Case of Miss R. with the precise meaning of “the basic nature of a person as established at childhood”. It was then expanded on and became known as the concept of “life style”. In the same way, a person’s attitude about a situation or a person can also be termed as his or her “lifestyle”.
So how does one refer to their “lifestyle” these days? The most common way is through the concept of lifestyle economics. This is the study of personal consumption behavior and its determinants, namely economic activity and technology, and how it influences the behavior of individuals. The discipline of this field has developed a number of influential concepts, most notably: consumption theory, satisficer theory, and welfare economics. The core idea behind all of these concepts is that humans act according to two sets of considerations: self-interest and external benefits, which have both personal and social consequences.
Let’s take a look at some of the most important theories in this literature. The first one is called consumption theory. Here, the theory implies that the level of consumption is positively correlated with the level of satisfaction of people. By contrast, there is a negative correlation between satisfaction and disposable income. This means that the more a person is satisfied with his lifestyle, the more he is willing to spend and the more he would want to save.
The second concept that comes to mind is called satisficer theory. In this concept, people are advised to prefer lifestyles that allow them to get the most enjoyment out of every dollar they spend. The good diets, the healthy habits, and the active vacations – if done right, will allow them to be satisfied with their lifestyle and be able to maximize his or her consumption. It also suggests that saving should be conditioned on the amount of return one expects to get from his or her lifestyle choices. For example, it could be said that rich people save more because they expect to be able to enjoy life even after reaching their age.
In terms of welfare economics, this field focuses on analyzing how an individual’s consumption decisions affect the distribution of wealth in society. The theory suggests that a person who consumes a lifestyle high in consumption, but without making enough effort to maximize his or her potential, will live a life filled with poverty. On the other hand, an individual who practices a consumption lifestyle high in investment and yet is able to maximize his potential, will enjoy relative prosperity. Life style choices such as these will then have a large effect on the distribution of wealth. The book Life Style, A Modern Analysis by Philip Nunn and Carlo DiClemente focuses mainly on the issue of consumption patterns, which has great implications for macro policies. In this review of Stili Di Vito and Laura Fenamore’s book, I will focus my attention on their ideas about why a policy regarding lifestyle consumption should differ from that regarding investment.
In a previous paper, I had suggested that different lifestyles create different opportunities for distributional effects, which I referred to as asset allocation. In this paper, I will expand on asset allocation and explore how these asset allocation policies affect asset distribution via life-style choices. Life-styles and leisure time are not identical; therefore, some policies may achieve their goals more effectively through one type of lifestyle than the other. Moreover, changes in life styles may also affect the way the distribution of resources is distributed. In my view, a policy concerning lifestyle consumption should take all of these into consideration when designing a distributional scheme.