Capturing Household Transitory Wealth Through an Index on Expenditures and Nondurables: Insights from Six Peri-Urban African Settings

This paper aimed to construct an index which captures transitory wealth, having the ability to explain how fertility shocks affect wealth, while avoiding the well-known issues of using direct expenditures. Data was from the wealth module of the Family Health and Wealth Study 2010, involving six peri-urban sites from 5 countries in sub-Saharan Africa. Using principal component analysis, 2 indices were constructed– a fixed asset score (FA) and a “middle-class index” (MCI), assumed to represent transitory wealth. Correlations between the FA and MC indices ranged from 0.177 in Ghana to 0.764 in Malawi. Variable Inflation Factor values were between 1.04 and 2.85, affirming independent measures of permanent and transitory wealth by the 2 indices. The MCI was positively and significantly associated with surplus income in Ethiopia and Nigeria-Ibadan, and positively but not significantly in Malawi and Nigeria-Ife. The MCI was found to be a statistically significant positive predictor of self-rated wealth measure and independent of FA. Results were also robust to controls for father’s education and family size. These findings suggest that the middle-class index is a viable alternative representation of transitory wealth more sensitive in predicting how changes to factors such as family size or health affect economic well-being.