Background
If you need to work with your clients on their finances, it’s important to understand the trend in American spending. We know that households’ spending has changed over time, but how? This analysis looks at the Bureau of Labor Statistics’ Consumer Expenditures study; to get a sense of change, it includes 1950, 1997 (the closest date to 2000 available), and 2017.
Findings
- House poor? The average household spends 1/3 of their budget on housing, up from ¼ after WW II. Because budgets have grown over time, this is even more dramatic. In constant dollars, Americans since WWII have doubled their annual housing spend to $20K/year.
- The love affair with cars: 16% of the budget goes to transportation, almost all of which is for automobiles.
- Cheap food and clothing: We’re spending a lot less on these categories, food at 13% down by half and clothing at 3% down by 2/3 since 1950. This is mostly a function of mass production in agriculture and textiles driving down costs.
- Big jump in retirement spending, but: This includes both social security and retirement plan/IRA contributions. This item has increased to 11% of “spending” but is largely replacing the pensions which went away as the burden of retirement savings shifted to workers. As we’ll see in later posts, it’s not enough.
- Healthcare costs rising: It’s risen from 5% to 8% of the budget in the past 20 years.
- It’s not much different for the affluent: If you look at the data for households with the top 10% of income, while they’re spending a lot more ($143K/year vs. $60K for the average household), the percentages on the different categories are very similar. The one large difference is that they’re putting 16% of their budget toward retirement savings.
Implications
In one sense, the findings above about the trend in American spending shouldn’t surprise – anyone managing their own budget probably is dealing with big mortgages or rent payments, spends a lot on cars, and is paying more than they used to for health care. However, this foundational data sets the perspective for future analyses which will look at how to help Americans improve their financial situation. If you want to counsel a customer on how to save more money, it’s unlikely that cutting back on their morning latte’ or a pair of shoes will make a big dent in their finances; you’ll have to focus on the bigger expenses. We’ll explore much of this in future posts.
The small print
All this data is from the Bureau of Labor Statistics Consumer Spending survey. 1950 and 1997 are from 100 Years of Consumer Spending and 2017 is from Consumer expenditures in 2017. To adjust the total budget amount for inflation I used the BLS CPI inflation calculator and calculated the budgets in 2017 dollars.