Everyone’s spending habits are basically the same. But rising housing and transportation costs hit low-income households hardest.
Consumer spending by income. All images by the author.
Data from the Bureau for Labor Statistics show that people of all income levels tend to spend similar percentages of their budgets on each expenditure category, with some exceptions. For example, as income rises, Consumer Units (defined as families living together, financially independent individuals, or groups of unrelated individuals who budget jointly) dedicate an increasing percentage of their budget to personal insurance and pensions.
Consumers at the lower end of the income spectrum spend a disproportionately higher percentage of their budget on housing costs. But on most other measures, including transportation, health care, and entertainment, the percentages across income levels are fairly equivalent, as shown in the graph above.
But these percentages represent share of total expenditures, and not all Consumer Units are operating with a balanced budget. A comparison of income and expenditures shows that lower-income families and individuals tend to spend more than they earn while higher-income units are able to stash some of their earnings away. The graphs below attempt to illustrate this:
Low-income households spend more than they earn.
When you change the denominator in the first graph from Total Expenditures to Annual Income, a more accurate depiction of our spending habits is revealed. Consumers earning between $5,000 and $30,000 per year spend 62% of their income on Housing, 24% on Transportation and 23% on Food. That’s 109% of their income gone just on these three basic necessities.
Low-income households are burdened by high housing and transportation costs.
This modified version of the first graphic presented gives a fuller representation of household finances at different income levels in the US. It paints a pretty bleak picture for low-income families and individuals.
A version of this post originally ran at R. U. Seriousing Me?