The purpose of this study is to identify and analyze the consumption patterns of low-income households as well as the factors that influence those patterns. The subject of this study is the consumption characteristics of low-income households because we believe that consumption is more reflective of their needs and lifestyles than is income, and is therefore more likely to reveal the diverse needs and desires of a class that policymakers ought to take into greater account. Consumption at the individual level can be understood as a process by which one satisfies a need. The amount of consumption thus depends upon the amount of resources at one’s disposal for satisfying basic needs. Poverty studies in the past mostly focused on the availability of economic resources and their potential for satisfying needs of the poor. Income was one of the most popular proxy variables standing for those resources in such studies, shaping their approaches to the amounts and structures of income that the low-income class earned. Confining our attention to resources in poverty research, however, runs the risk of blinding us to the particular characteristics of the poor’s needs and actual living conditions, and could potentially result in inadequate and unrealistic Background and Purpose << of the Research 4 The Consumption Patterns of Low-Income Households and Their Policy Implications policies. Income has for a long time been favored as a main measure of poverty in analysis and research because it is relatively easy to measure in relation to a large population and can easily be translated into policy terms. However, there is a growing tendency in research toward emphasizing consumption instead of income as a measure for understanding the level of (material) wellbeing that members of a society enjoy. Examples include Atkinson (1991), Deaton (1997), the World Bank (2001), and Meyer and Sullivan (2003). Meyer and Sullivan (2003) have especially influenced researchers into turning their attention to consumption as the more important subject of analysis than income in matters of policymaking on poverty. First, consumption is a more direct measure of the material quality of life one enjoys. Second, and related to the first, consumption as such thus provides a more helpful guide on understanding long-term developments in standard of living than current income. Third, consumption runs less risk of under-reporting. Fourth, consumption provides more useful information on understanding culturally heterogeneous groups making up a population (Meyer and Sullivan, 2003, p. 1). Researchers have generally preferred income over consumption because of the existence of official sources of reports on the former. A population enjoying the same single source of Ⅰ. Background and Purpose of the Research 5 income has no difficulty in answering questions about income. The same ease is not found when researching the poor, who tend to be under-educated. Members of the low-income class earn much of their income from a variety of sources, many of which are also informal. Consumption is also the more standard and intuitive measure of the material quality of life than income in developing countries. This stems from the difference between developed countries and developing ones in official employment rates (Meyer and Sullivan, 2003, p. 1). As many in developing countries work in jobs that are outside the formal sector, we may better understand their wellbeing by measuring their consumption than their income. The same applies to the poor in developed countries who also tend to work outside the formal sector. Poterba (1991) has demonstrated the glaring disparities between income and consumption in the young and elderly groups. These differences reflect lifecycle-specific employment behavior. Measuring the current income of these groups is therefore likely to lead us to underestimating their material wellbeing (Meyer and Sullivan, 2001, p. 4). The fact that the elderly and young adults make up a significant portion of the poor is all the more reason we should turn our focus from income to consumption. Despite the importance of consumption in research, it has been relatively neglected in the existing literature on poverty. 6 The Consumption Patterns of Low-Income Households and Their Policy Implications In this study, we closely examine the changing characteristics of the consumption patterns of the poor in Korea with a view to better understanding their policy needs.

I. Background and Purpose of the Research 1

II. Literature Review 7

III. Methods of Analysis 19

IV. Results 27

1. Consumption of Low-Income Households: Changes and Characteristics 29

2. Consumption Patterns of Low-Income Households 37

3. Decisive Factors of Low-Income Households' Consumption Patterns 46

V. Policy Implications 51

Bibliography 57