A Blog by Jonathan Low


Apr 17, 2015

How the Rich, the Poor and the Middle Class Actually Spend Their Money

F.Scott Fitzgerald said the rich are different from you and me. But not, as it turns out, in how they spend their grocery money.

An analysis by the US Bureau of Labor Statistics shows that the rich, the poor and the middle class spend proportionally the same amounts on many items as a percentage of income. Though the rich needless to say, spend more, because they want to - and they can.

This phenomenon became apparent in the 90s when shopping at 'The Two Ts' - Tiffany's and Target - established consumer patterns based on intangibles like quality and convenience as significant differentiators of consumer purchase decision-making in addition to or rather than price. JL

Max Ehrenfreund reports in the Washington Post:

Regardless of income, Americans make very similar choices. The wealthy spend more, and less as a share of their total spending. Yet the rich, the poor and the middle class all spend about 19 percent their budget on fruits and vegetables, about 22 percent on meats, and about 13 percent on breads and cereals.Other food categories also show no variation with income.
Lawmakers in several states are urging limits on how welfare recipients use public benefits, suggesting that the poor are buying things like lobster, filet mignon, vacations aboard cruise ships and visits to psychics. It's an open question whether the problem these proposals aim to solve actually exists, but the Bureau of Labor Statistics just helpfully released new data on how the poor -- and the rich -- spend their money.
For the first time, the bureau released this data for ten equally sized classes of U.S. households, sorted by income. While the bureau doesn't have data on lobster and filet mignon, the survey does provide a fascinating level of detail.
As the chart above shows, the rich spend more in almost every category, because they can. As a percentage of their total incomes, which are larger, the rich generally spend less. The result is that the rich have relatively more to spare after covering essentials such as housing, despite their more extravagant budgets in these categories. The chart below reveals the differences.

One exception was transportation. As a share of total spending, the middle class spent the most on getting around. Biking or walking to work is something that the wealthy and the destitute do. The middle class apparently commutes by car. The bureau's data show that people with moderate incomes spend the most on auto loans, gas, repairs and car insurance relative to overall spending. (The rich still spend more in these categories in absolute terms.)
Another way of examining the data is to compare spending in each category to the household budget for food at home. This comparison makes clear how much the rich or the poor are spending on something relative to the weekly grocery list.
The survey provides no evidence that the poor are wasting their money on delicacies. Indeed, the results show that regardless of income, Americans make very similar choices at the grocery store. The wealthy spend more overall, of course, and less as a share of their total spending. Yet the rich, the poor and the middle class all spend about 19 percent their grocery budget on fruits and vegetables, about 22 percent on meats, and about 13 percent on breads and cereals.
Other categories of food also show no variation with income. What about that lobster? Fish and seafood account for between 3 percent and 4 percent of the grocery budget for all groups -- $80 per year for the poor, and $222 per year for the wealthiest group.
It's comforting that when it comes to their choices at the grocery store, Americans have so much in common, given the other factors dividing the country along economic lines.
Unsurprisingly, the rich spend relatively more of their money eating out and buying alcohol, compared to the grocery budget. The poor still smoke, while the affluent have largely given up the habit.
The rich have more to spend on other luxuries, too. The richest tenth spent $2,239 over the year on fees and admissions, likely to sporting events, museums and concerts, and $1,084 on their pets. The poorest group spent $162 and $220 in these categories, respectively.
The greatest difference by far between rich and poor is not in how they spend, but how they save. For every dollar they spend at the grocery store, the poorest households save 12 cents, while the wealthy sock away $3.07 in pensions and life insurance.

This is one reason that some economists are concerned about rising levels of inequality. The rich save more than the poor, and the more they have, they more they'll save. Money that's being saved isn't being spent, which means less business for everyone from the dry cleaner on the corner to the owner of a five-star hotel. In turn, that means less work for everybody and a lethargic economy.
To be sure, banks can invest the money that the wealthy save, which can stimulate the economy as well. Yet many observers, including former Federal Reserve Chairman Ben Bernanke, are worried that as a global society, we've accumulated too much in the way of savings already.


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