The Micawber Connection: Subjective Discretionary Income

William D. Wells, Needham Harper Worldwide
Thomas C. O'Guinn, University of Illinois
Martin I. Born, Needham Harper Worldwide
ABSTRACT - This paper presents a tentative operational definition of Subjective Discretionary Income. It demonstrates the construct's predictive power, and shows some ways this construct can contribute to our understanding of consumer behavior.
[ to cite ]:
William D. Wells, Thomas C. O'Guinn, and Martin I. Born (1986) ,"The Micawber Connection: Subjective Discretionary Income", in NA - Advances in Consumer Research Volume 13, eds. Richard J. Lutz, Provo, UT : Association for Consumer Research, Pages: 349-353.

Advances in Consumer Research Volume 13, 1986      Pages 349-353


William D. Wells, Needham Harper Worldwide

Thomas C. O'Guinn, University of Illinois

Martin I. Born, Needham Harper Worldwide


This paper presents a tentative operational definition of Subjective Discretionary Income. It demonstrates the construct's predictive power, and shows some ways this construct can contribute to our understanding of consumer behavior.


Some people with high incomes cannot pay for everything they think they need, and some people with low incomes seem to get along very well with what they have. In David Copperfield, Mr. Micawber said it best: "Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditures twenty pounds ought and six, result misery." (Dickens 1849-1850).

Economists have captured the causal part of this relationship in the term "discretionary income" i.e., "personal income less what is spent on necessities." And, following Mr. Micawber, they have found that discretionary income is better than unmodified income when it comes to gauging "family well-being" (Morgan and Duncan 1980).

One problem with "discretionary income" is that its definition contains the term "necessities." Specification of "amount spent on necessities" requires arbitrary decisions as to what is necessary and what is not, and complex adjustments for household size, area of residence and other demographic characteristics (Katona 1975; Linden, Green and Coder 1982). These decisions and adjustments are inevitably difficult, and they may require information which has not been or cannot be collected.

Another way to define discretionary income is to take the subJective route, as in "true" or "false" responses to the following statements:

1) We have more to spent on extras than most of our neighbors to.

2) Our family income is high enough to satisfy nearly all our important desires.

3) No matter how fast our income goes up, we never seem to get ahead.

A person who answers "true" to statements 1) and 2), and "false" to 3) is arguably higher in subjective discretionary income than is a person who answers in the opposite direction. The result of 1)+, 2)+, 3)- may not always be happiness, but the result of 1)-, 2)-, 3)+ seems pretty likely to be misery.

In addition to predicting family well-being, this definition of Subjective Discretionary Income helps explain certain kinds of purchasing behavior. As economists have always known, people who have high incomes buy more of almost everYthing than do people who have low incomes. But there is more to the story.


The related literature comes from economics, home economics and sociology. "Discretionary income" comes from traditional economics. While the concept is familiar and widely used, it is extremely difficult to operationalize, especially in research on buyer behavior. Who is to say what should, and what should not, be counted as "necessities"? And who is to say how much of the money spent on foot, for instance, is "necessary," and how much is luxurious?

"Life Satisfaction" is another related research area. Here, the intent is to determine what variables contribute most to an overall sense of well-being. One of the most consistent findings within this body of research is that assurance of a good income is a very important predictor (Bhardwaj and Wilkening 1977; Cantrill 1965; Dickens 1849-1850).

Most directly relevant is the literature on "perceived economic well being." Although this literature is not entirely consistent, a few generalizations can be mate. First, although real income is correlated with perceived economic well-being, the two are far from synonymous (Williams 1983). Other major predictors are indebtedness, perceived expertise as a money manager, retirement concerns and 8 general sense of perceived security (Dunsing 1983).

So, from classical economics we have borrowed the concept of discretionary income: that which remains when one has purchased what is "necessary." From Sociology we have borrowed the concept of "life satisfaction." From home economics we have borrowed "perceived economic well being. And we owe a primary debt to Charles Dickens.


Data for this study came from the 1984 Needham Harper Lifestyle survey. Each year approximately 3500 U.S. adults fill out an extensive questionnaire. The instrument is administered via the mail to a national quota sample drawn from Market Facts Consumer Mail Panel. A small gift is offered to encourage response. In 1984 response rates were 74.7% for men and 86.4% for women. The instrument measures a wide array of attitudes, interests and opinions, personal and household purchases, product ownership, purchase intentions and media exposure patterns, as well as standard demographics. Both the instrument and the sampling procedure have undergone refinement every year since the study's inception in 1974 in an attempt to achieve reliable, valid and generalizable findings.

Three items consistent with the Subjective Discretionary Income concept are scattered among the 221 attitude and opinion measures in the Needham Lifestyle instrument. The three items Are :

1) We have more to spent on extras than most of our neighbors to.

2) Our family income is high enough to satisfy nearly all our important desires

3) No matter how fast our income goes up we never seem to get ahead.

The statements are answered on a sis point scale, with definitely disagree (1), and definitely agree (6) as anchor points. When the responses for the three items are summed, with the last item reverse coded, the result is a score with a range of three to eighteen. Respondents who score high on this scale are indicating that they have enough money to buy what they think they need, and then some. Respondents who score low are saying that they have a tough time simply making ends meet.

This study answered three questions: (1) Was Mr. Micawber right about misery and happiness (2) Does Subjective Discretionary Income add predictive power to a basic demographic model? And, (3) how can we best characterize individuals with disparate levels of Total Family Income (TFI) and Subjective Discretionary Income (SDI)?

The Micawber question was answered with simple correlations reported in the Findings section of this paper. Questions (2) and (3) required methods which need some explanation.

SDI as a Predictor

To determine whether SDI adds predictive power to demographic variables, we constructed a simple demographic model. The model includes: total family income, household size, and life-cycle. The first two variables are self defining. The third includes chronological age, the presence or absence of children, and the children's stage of development. The life-cycle variable was defined as follows:

1= no children, respondent is less than 35 years old.

2= respondent has children; youngest child is less than sis years old.

3= respondent has children; youngest child is 6-12 years

4= respondent has children; youngest child is 13-17 years

5= no children at home; respondent is at least 35 years old.

Total Family Income, Household Size and Lifecycle formed a demographic model against which we tested SDI's power as an additional predictor of buyer behavior. The first variable, TFI, indicates how much total money was brought into the home in calendar 1984. The second variable, Household Size, indicates how many individuals were in the respondent s household in that year. This variable is particularly important since it indicates among how many individuals Total Family Income must be divided. The third variable, Lifecycle, combines the effects of chronological age and the changing consumer needs and wants brought about by growing children.

Since this three-variable model should be very predictive in and of itself, it provides a tough test of SDI's ability to tell us something that we did not already know.

The three demographic measures were simultaneously entered into a regression equation. A test was then performed to see whether SDI would contribute significant additional explanation of the dependent measures. Since the dependent measures were either binary (owned; did not own) or ordinal (high, medius, low consumption) we used a logistic regression (Harell 1983; Press and Wilson 1978). The criterion for SDI's entry into the equation was a change in the adjusted chi square Q statistic (see Bartolucci and Fraser 1977) significant at the .05 level or beyond.

We explored a vide array of dependent variables, including consumer durables such as automobiles, personal care products such as toothpaste and deodorants, household goods and services such as food items, and use of media such as cable television.

Consumer Typologies

The third research question was: How can we best characterize individuals with disparate levels of Total Family Income (TFI) and Subjective Discretionary Income (SDI)? We addressed this question by dividing respondents into four groups. First, both TFI and SDI were split at their medians: $25,000 per year for TFI; a score of 10 out of 8 possible 18 for SDI. These splits provided four groups: (Low TFI, Low SDI); (Low TFI, High SDI); (High TFI, Low SDI); and (High TFI; High SDI).

We developed "profiles" of each group by identifying the items which best typified the group. The "most typical" items were defined as items on which at least one group percentage was at least eight points higher or lower than all other group percentages. This arbitrary definition has the advantage of not being quite as cumbersome as a true multiple comparison test. Since the sample was large, the definition is statistically very conservative.


First, about Mr. Micawber

The Needham Lifestyle questionnaire contains another relevant statement: "I am very satisfied with the way things are going in my life." The correlation between Total Family Income and reported satisfaction was positive and significant (rs= .154; p < .0001). But, as Dickens would have predicted, the correlation between Subjective Discretionary Income and reported satisfaction was much higher (r - .363; p < .0001). Mr. Micawber was right .


Subjective Discretionary Income (SDI) and Total Family Income (TFI) are related. The correlation was positive and statistically significant (rs - .292- a < .0001), but far from perfect. Within every Total Family Income level, some respondents have high SDI, and some have low SDI (Table 1). We are comparing two related, but distinctly different constructs.



SDI and the Demographic Model:

Income, family size and stage in life cycle are traditional, "hart" demographic variables; Subjective Discretionary Income is a "softer," psychological variable. Which is better at explaining consumer behavior? The answer turns out to be both interesting and complex.

The results of the logistic regressions, summarized in Table 2, will be discussed in five Outcome Categories.

Outcome Category 1 consists of goods and services for which Total Family Income (TFI) is essentially all that counts. Even though SDI meets the entry criterion, it plays at most a minor role relative to TFI. In six of the seven cases, TFI was a positive predictor of use: 4 microwave oven, a portable work table, an automatic electric drip coffee maker, a video cassette recorder, a plastic outdoor garbage can and plastic microwave cookware. In the seventh case, common household baking flour, TFI was negative - - i.e., low income predicted high consumption. The items for which TFI positively predicted ownership are for the most part expensive, non-basic consumer durables. Flour, the item for which TFI predicted negatively, is basic and cheap.



In Outcome Category 2, SDI carried most of the explanatory weight. It was a positive predictor of ownership or use in four cases, and a negative one in two. The positive items were food processors, cream cheese, fresh oranges, and non-stick cooking sprays. The negative items were candy bars and frozen TV dinners.

Oranges and cream cheese are natural, relatively unprocessed and simple foods. There is 8 wholesome quality about them. Non-stick cooking spray allows one to prepare food without adding saturated fats. In contrast, candy bars and TV dinners are highly processed convenience foots, and are generally perceived as less nutritious. The food processor's positive sign is consistent with these findings. Those who buy this generally expensive item are often concerned with nutrition, and are interested in preparing their own fresh foods rather than buying what someone else has processed, packaged and sold. Thus, the items in this outcome category reflect a health conscious group of consumers. When SDI is very important and TFI is insignificant, one observes consumption of food items which are wholesome, "natural" and nutritious.

In Outcome Category 3, TFI and SDI work together: both enter the equation in the same direction, and to a comparable and significant degree. IN six of these cases both SDI and TFI were positive. In one case SDI and TFI were both negative. The positive items were: a freezer, diet bottled salad dressing, paper towels, plastic food wraps green salad, and non-business related hotel visits. Heavy users of these items have high incomes and feel that they have extra money to spent. They are able and willing to buy what many would consider a luxury item (freezer), convenience products (paper towels, plastic food wrap), to travel for pleasure (hotel visits), and stay thin by eating green salads with diet bottled salad dressings. The single negative item was cigarettes. Users of this product have low incomes and feel pinched. It is not at all surprising that cigarettes are negatively related to the rest of the product cluster.

In Outcome Category 4, SDI was negative when TFI was positive: the higher the total family income, the more likely the purchase; but, at any level of TFI, people with low SDI are more apt to buy. The items in this category are: a motorcycle, a multi-symptom cold remedy, potato chips, a butter-margarine blend, a personal loan from a commercial bank, frequent patronage of Burger King, frequent patronage of convenience stores, and loans at both a savings and loan and a consumer finance company. The items in this group suggest a consumer who makes a good wage, but spends it on products and services with blueCcollar associations.

Many of these items are purchased by consumers who live beyond their means in order to enjoy the lifestyle trappings of "the good life".

The fifth and last condition is one in which SDI and TFI are again at odds as predictors. This time, however, TFI is negative, and SDI is positive. Only three products comprise this category: cottage cheese, high fibre bran cereals, and jams, jellies and preserves. This product cluster suggests a preference for wholesome, relatively unprocessed and inexpensive foods.

So the answer to research question (2) is "yes". SDI does contribute to the prediction of consumer purchases, even when the effects of major demographic variables are partialed out. Furthermore, SDI's role in such predictions, both as to relative weight and as to sign, forms some interesting, non-obvious and intuitively appealing patterns.

Quandrant Analysis

The third research question addressed the task of profiling individuals with varying levels of TFI and SDI. By cutting TFI and SDI at their respective medians, respondents were divided into four groups: high on both Total Family Income and Subjective Discretionary Income, low on both, and two off-diagonal segments who are high on one but low on the other. When their activities, interests and opinions are contrasted, these groups present distinct lifestyle patterns. These lifestyle patterns are similar for both men and women. For the sake of brevity, we will look exclusively at the male typologies.

The descriptions below reflect each group's lifestyles relative to the other groups.



A) (High TFI: High SDI): This man is the most "well off," economically and subjectively. He's more likely than other men to invest in money market funds, mutual funds, common stocks and certificates of deposit. He's less likely to adopt the philosophy of spending for today and letting tomorrow take care of itself. He's an economic optimist. He is the least likely to believe that it's difficult to find a good job. Be's more apt to believe that he will make more money nest year, and less likely to believe that inflation will take a big bite out of his increasing income. Be is, however, price conscious to the point of paying attention to food prices.

He lives the "good life." He eats out frequently and enjoys giving and attending dinner parties. He is a relatively heavy user of gin, cordials, liquors and after dinner drinks. He's also the most likely to visit an art gallery, and to want to live in or near a big city.

Since he has a well paying managerial occupation, he does a fair amount of traveling, occasionally outside the E.S. While much of his traveling is for business purposes, he also takes airplane trips and stays at hotels when vacationing.

He feels less pressure than most . Be doesn't dread the future, wish for the "good old days", or feel that things are changing too fast today.

He's well educated (often post-graduate) and believes in making detailed plans. He is the most likely to read the Wall Street Journal, the Business section of his local newspaper, and the least likely to enjoy Country and Western music.

He's a little calorie conscious and is the most likely to consume diet sodas.

He is most likely so live in a two person household, make long distance calls, and own relatively expensive and non-essential items such as a high-priced 35mm. camera and microwave cookware.

B) (High TFI: Low SDI): This man's dilemma is that be makes a good salary, but he still has to struggle to get by. He's simply spending his money faster than he earns it. He admits that he has a difficult time saving money, and he is a heavy user of bank charge cards and credit unions. The fact that he is the father of teenagers may have something to do with this pattern. Although he invests, his investments most typically require smaller amounts of liquid capital: I.R.A's, retirement accounts and co on stock. Still, he is interested in business matters. He is more likely to read the Wall Street Journal than are members of the two lover income groups .

He's not a very happy individual. Be openly admits the desire to leave his present life behind. He feels more pressure than most, and does not believe that his neighbors perceive him as a leader. In the Walter Mitty tradition, he still believes that his greatest achievements are ahead of him.

If happiness were simply possession, this man would indeed be happy. He is likely to own relatively expensive and non-essential items such as power tools, home electronic video games, an expensive 35mm. camera, and plastic microwave cookware.

Two purely psychographic measures are worth mentioning. This individual is the least likely to describe himself as a "day person", and is the least likely to admire "a successful businessman."

C) (Low TFI: High SDI): More than a third of the individuals in this group are over the age of 65. This man, who is likely to be retired, is more inclined than other men to believe his greatest accomplishments in life are behind him.

But the picture is not entirely bleak. While his income from wages is relatively low, he has built up a comfortable nest egg which lets him enjoy life more fully (hence, his high SDI). His apparent fondness for saving his pennies is evident in his belief that one shouldn't spend for today and not worry about tomorrow, and in his greater use of savings stamps.

Be is conservative, and some of his views seem old fashioned when compared to his younger counterparts. He thinks there is too much emphasis on sex in general, and specifically on television. He is much less likely than others to care for science fiction movies; he believes the police should use as much force as necessary to preserve law and order; he believes that men should be clean shaven everyday, and that a women's place is in the home. Personal computers are nev-fangled gizmos for which he has little use. And, not surprisingly, the chances of his frequenting a video arcade or playing video games at home are slim.

Being older, he tends to watch what he eats. He prefers natural foods to those that have additives. He tries to avoid caffeinated beverages and fried foods, to get fibre into his diet, and he is not inclined to eat at fast food restaurants.

He likes to read advertising supplements, Readers Digest, and watch the Today Show and Real People.

He is the least likely to describe himself as a "swinger", and the least likely to feel that he would do better than average in a fist fight.

D) (Low TFI: Low SDI): This man may well be the least fortunate of the four typologies we have met. He's not well off and doesn't feel well off either. Be's an economic pessimist. Be's no good at saving money, and shopping is simply no fun anymore.

His outlook on life is negative. He feels under pressure. He doesn't feel influential even in his own neighborhood. Of the four groups, he is the least satisfied with his current situation; he dreads the future and wishes for the good old days. 'de doesn't like to make detailed plans.

Compared to men in the other three groups, he appears to have few interests. He is less likely to have recently read a book, given or attended a dinner party, gone out to eat, gone to a club meeting, gone to the library, visited an art gallery, done volunteer work, or read the news section of his local news paper. However, he does have diversions, watching The A-Team and Knight Rider.

Money market funds, common stock, certificates of deposit or even IRA's are not part of his investment portfolio (if, indeed, he has one). He is not particularly concerned about stylish clothes, and he is the most likely of all the groups to purchase sportswear at K-Mart.



This paper has presented Subjective Discretionary Income, a psychological concept that adds a useful new dimension to our understanding of buyer behavior. It has also presented a three-item operational definition of the construct, and some interesting relationships among Subjective Discretionary Income, Total Family Income, and the wag various purchases relate to other aspects of the purchaser's life.

We hope that the present scale will merit improvement. The three items that form the scale were all put into the survey for other purposes. A longer scale, deliberately constructed, would probably be more reliable and more valid.

We also hope that other researchers will find Subjective Discretionary Income interesting. The scale that measures it can be added to almost any questionnaire at little marginal cost, and may well be worth additional exploration. As Jack Bunsby said to Captain Cuttle et. al. in another work by Dickens (1848): "The bearings of this observation lays in the application of it."


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