Some notes on how we spend our money

A few days ago the Planet Money team posted a graph of how Americans spend their money, according to income brackets, based off of information included in the BLS (Bureau of Labor Statistics) Consumer Expenditure Survey (CE):

There are quite a few takeaways from this data, summarized by Planet Money:

Everyone devotes a huge chunk of their budget to housing, for example. Poor, middle class and rich families spend similar shares of their budgets on clothing and shoes, and on food outside the home.

But poor families spend a much larger share of their budget on basic necessities such as food at home, utilities and health care. Rich families are able to devote a much bigger chunk of their spending to education, and a much, much bigger share to saving for retirement.

Derek Thompson includes his own graph based on the same BLS data:

And adds his two cents (my emphasis added):

The results aren’t so surprising: Poor people spend more of their money on essentials than richer people (and these numbers don’t account for dramatic geographical differences). But how much is left over?

After essentials — housing, transportation (incl. gas), food, utilities, and clothes — the poor have 15% of their disposable income left over, and the $150K+ crowd has about 40%.

Click through for a second graph on what’s left after ‘essentials.’

So the poor spend more of their income on housing, food, utilities. All of this data is based on pre-tax income, so I looked up the before/after tax numbers in the CE and drummed up these charts (broken into income quintiles):

The specific numbers:

  • Lowest 20th percent: Before Taxes – $9,906. After Taxes – $10,034.
  • Second 20th percent: Before Taxes – $26,777. After Taxes – $26,966.

The specific numbers:

  • Fourth 20th percent: Before Taxes – $72,794. After Taxes – $71,220.
  • Highest 20th percent: Before Taxes – $157,369. After Taxes – $150.144.

So the basic dynamic of the tax system shows itself in the CE: that after-tax income income is slightly progressive for the poor and slightly regressive for the wealthy. This helps ameliorate the greater percentages that the poor spend on essentials and is a feature of the system, not a bug. For a breakdown of ‘who gets what’ within that system, read this previous post. Depending on you ideological flavor that fact could please or anger, being too much or too little as well. However, note how little the change is for both brackets: +$128.00, +$189.00 and -$1,574.00, -$7,225.00 respectively. Of course there are other non-tax redistributive factors for the poor (SNAP, TANF, etc) that also affects income. Yet as far it relates to the tax structure, Americans are overwhelmingly still playing in a ‘before-tax’ world.

One other aspect of this CE data that I wanted to point out were the levels of educational attainment:

Please remember the impact that the ‘higher education elevator’ has on intergenerational economic mobility and contemporary wage-earnings. As you can see from the above, and is already well-established, college attainment is progressive along the income scale. Unfortunately the CE doesn’t breakdown the college section, so this could include everything AA’s to PHD’s. Nevertheless, nearly half of the lowest 40 percent is working with only a high-school diploma. As reported by Dylan Mathews, via information from the Hamilton Project, median (male) wages for those high school earners have dramatically declined:

Unfortunately I don’t really have anything profound to add to all this – though many hate when they read or hear this phrase, it is what it is. It’s nothing special to say that our pubic policies (i.e., redistribution, investment, education) are heavily related to these facets of how we spend our money. Ergo it’s important to know this things, and on a more personal level it’s important to recognize their documentations. For my own part the most worrisome information appears at the end of Thompson’s post (my emphasis):

[…] a few categories you might argue are essential: food at restaurants (which is somewhere between elective and essential), health care (which is essential, but spiky) and education (which is practically essential, but specific to certain years). After those categories, the poorest group has spent 98% of their income, leaving them with $367 for the year — or a dollar per day. 






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