Federal Reserve FEDS Notes·Oct 9, 2026, 10:00 AM ET

Heterogeneity in the Marginal Propensity to Consume among U.S. Households

The 2025 Survey of Consumer Finances introduced a new question asking households how they would allocate a hypothetical windfall equal to one month of normal income.
On average, households reported spending 22 percent of the windfall, saving 47 percent, and using 30 percent to pay down debt.
The estimated aggregate marginal propensity to consume (MPC) of 22 percent falls toward the lower end of estimates found in the broader empirical literature.
MPCs decline gradually across the income and wealth distributions before dropping sharply at the top, with the top 1 percent of earners having an MPC of approximately 14 percent.
Households with less liquidity spend a larger share of the windfall (22.9 percent) compared to those with more liquidity (20.3 percent).
Households facing greater income uncertainty exhibit a higher MPC (21.7 percent) than those with more certain income expectations (20.1 percent).
Less financially knowledgeable households have a higher MPC (21.4 percent) compared to those who answered all financial literacy questions correctly (19.9 percent).
The SCF's inclusion of high-income and high-wealth households allows for a complete analysis of MPCs across the entire distribution without significantly altering the aggregate average.
The hypothetical windfall question defines the amount relative to normal annual income to ensure uniform shock size across respondents.
Debt repayment is treated as a distinct allocation category to prevent ambiguity and avoid artificially inflating spending estimates.
The survey results align with theoretical predictions that liquidity constraints, income uncertainty, and lower financial literacy drive higher consumption responses to income shocks.