How Americans Make And Spend Their Money

2007-09-16_slide01Was F. Scott Fitzgerald right when he wrote that, “Let me tell you about the very rich. They are different from you and me.”?

Yes, at least according to a recent study from the U.S. Bureau of Labor Statistics.

Even though rich, poor and middle-income Americans may share the same geography, we make and spend our money in very different ways. And our priorities are changing–we spend differently today than we did 100 or even 20 years ago.

2007-09-16_slide02The differences start with the way we bring home the bacon. The top fifth of American earners get 84% of their income from wages and salaries. But the middle fifth only draw 77% of their money from a job, and the lowest just 38%.

At that bottom end of the scale, retired and unemployed Americans rely far more on safety nets: the lowest-earning fifth of the population gets 48% of its yearly income from retirement funds like Social Security, and 9% from public assistance programs like food stamps. 2007-09-16_slide03The middle fifth of the population only gets 16% of its income from retirement funds and 0.5% from public assistance, and the richest fifth only 4% and 0.1%, respectively.

In the past, Americans relied even more on public assistance. The percentage of our income that comes from wages and salaries is up 5% since 1989, and the lowest-earning fifth of the population have cut their income from assistance programs by a quarter.

2007-09-16_slide04One thing we all have in common is, regardless of income-level, Americans’ single biggest expense is housing. Low-earning groups tend to spend more proportionally on shelter than top earners, but on the whole, the average American household spends about one third of their yearly budget on the roof over their heads. That’s a more than 100% increase since 1960, when Americans spent just 14.6% of their budget on housing.

2007-09-16_slide05But the similarities end there. The second biggest expense for America’s top-earners is transportation, accounting for 17% of spending. In contrast, the lowest-earning fifth of the population spend 17% of their money just trying to stay alive: their second biggest expense is food.

Even when we eat, we eat differently. 2007-09-16_slide06The more Americans make, the less they spend on groceries. The bottom fifth of earners spend a whopping 12% of their yearly budget on food at home, compared to 9% for the middle fifth, and 6% for the top fifth.

In the past, feeding our families took a much bigger bite out of American budgets –and it hardly ever included dining out. In 1901, according to a 1997 Bureau of Labor Statistics study, the average family spent almost half of their budget on food. Just 3% of that went to meals away from home. Today, 2007-09-16_slide07we only spend an average 13.3% of our budgets on food–but 42% of that money is spent in restaurants.

Americans moved in recent generations from cooking at home to eating out because they think they don’t have time to cook, says Sheryl Garrett, founder of the Garrett Planning Network, a network of financial advisers. But that’s not a sound decision, she says. “If you think about it, if you count packing the family into the car, 2007-09-16_slide08driving to the Applebee’s, standing in line for 20 minutes, getting to your table, waiting for your food, checking out, paying the bill of 40 or 50 dollars, and then driving back home, have you saved any time at all? No, definitely not. And you’ve probably spent four times what you could have at home.”

Many expenses tend to hit low and middle income Americans the hardest. Health care–a category that includes health insurance, medical services, 2007-09-16_slide09medical supplies and drugs–bleeds away 8% of the budget for low-earning families, 6.8% of the middle fifth, and just 4.6% for the top fifth. Those figures reflect the fact that higher-income consumers have much better insurance coverage–those in the top fifth spend 15.1% of their budget on personal insurance and pensions, compared to just 2.4% in the bottom fifth–so their out-of-pocket expenses are much lower, says Scott Hoyt, director of consumer economics at Moody’s

2007-09-16_slide10Meanwhile, education costs are felt most at the ends of the economic spectrum. Consumers in the bottom income bracket spend nearly 4% of their budgets on education, and wealthy Americans chipped in almost 3%. While these numbers represent two-fold increases in education spending since 1989, Americans in the middle income bracket have stayed the course, consistently spending around 1% of their expenses on education.

The spending pattern is likely attributable to age, says Hoyt: Low-income consumers are more likely to be young people paying off loans, and at the upper end of the spectrum there are parents sending kids to private school and college. Laurence H. M. Holland and David M. Ewalt 07.19.06, 10:00 AM ET


About mtlin

I'm easygoing and sometimes sentimental, also can be very funny. Geek style but social. A Blogger, a Wikipedian and an Engineer.
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