Tag Archives: discretionary income

A few graphs suggest people in wealthier countries spend more on housing, less on food

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Look at some graphs of how families in different countries around the world spend their money and a few things stand out:

Two big ideas for the road: Houses and food. Everybody needs somewhere to live and something to eat. But you can learn a lot about a country by looking at housing and food spending. Here’s how the U.S., where middle-class families spend about a third of their income on housing, compare to the developing economies in this survey…
I don’t want to push this point too far, because these sort of surveys have obvious limitations. Tremendous income inequality in developing countries with hundreds of millions of people makes it impossible to tell the story of the frothy middle class *in one graph.* But the bigger picture is clear and uncontroversial. When families earn more income, they can afford to eat more and buy more clothes, but the real shift is from those essentials to bigger better houses, education, and health care.

Interesting. However, I wonder much of this differs by country based on political, economic, and cultural values. Clearly, items like food are necessary for survival. But once citizens reach a certain income threshold, I assume there are differences across countries in how they spend this more discretionary income. For example, in the United States, transportation is a relatively high cost because of a reliance on automobiles. Similarly, people in the US might spend relatively less on food but how much of this is due to policies that help keep food prices low? More broadly, don’t government policies affect whether people have to spend more in certain categories; for example, they might spend less out of their income for health care but if that is due to paying higher taxes which cover more health care costs, then such figures of discretionary spending might be misleading.

Perhaps this situation is ripe for a cross-cultural experiment. Go to different countries and give people a scenario: suppose you are given a decent sum of money (might differ by country) and then ask how people would spend that money. What emerges as a common need or want?

Middle class cuts spending on alcohol, clothes, eating out

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In these troubled economic times, new data suggests the middle-class is cutting back spending in certain areas:

Households in the middle fifth of the population sliced their average annual spending to $41,150 in 2009, the Labor Department said Tuesday in its annual spending breakdown. That was down 3.1% from 2007 and 3.5% from 2008, the steepest one-year drop since records began in 1984. The drop came even as those households’ after-tax income remained relatively stable over the two years, at an average $45,199.

Middle-class households reined in spending mainly on discretionary items. On average, from 2007 to 2009, they cut spending 20.1% on alcoholic beverages, 15.2% on clothing, and 9.5% on restaurants and other food away from home. They also spent less on some groceries, cutting back on items such as fresh milk and cream, as well as seafood.

Some of the change in spending could reflect a shift to cheaper alternatives, such as picking McDonald’s over sushi.

So when middle-class families need to cut back on spending, this is where they limit their spending: alcohol, clothing, and eating out. Presumably, more positive economic climates lead to more spending in these areas.

This is interesting in that it provides some indication of what the middle class considers “luxury items.” These are not generally big-ticket things but having the ability to drink more alcohol, buy more clothing, and eat out more may be the height of middle-class enjoyment. To reach the middle class may mean that one is able to spend in these areas without worrying too much about the budget.