Thursday, February 20, 2014

BLS Consumer Statistics: What Do They Tell Us?

BLS Consumer Statistics
I stumbled across some Bureau of Labor Statistics (BLS) numbers the other day, outlining the average amount American household's spending on everything from clothing, to transportation, food, and housing. This is a treasure trove of data for a personal finance nerd like me. As I dug into the statistics though, I found myself getting a little discouraged by the whole thing. Somewhat surprisingly, it looks like the average "Consumer Unit" (what the BLS calls various groups of people living together) is making pretty good money: nearly $66k before taxes. But, unsurprisingly, we Americans are spending almost all of our income. Let's dig into the numbers:

My Summary of the Data 
BLS Consumer Statistics

Before diving in, I should note that the Bureau of Labor Statistics defines a consumer unit pretty broadly: "Consumer Units include families, single persons living alone or sharing a household with others but who are financially independent, or two or more persons living together who share expenses". Complicating matters, my estimates for post-tax income are calculated assuming a married couple finding jointly, and only taking the standard deduction and two personal exemptions (no additional deductions for children). The figures would be very different for the average unmarried couple, single parent family, family with many children, people who itemize, max out 401ks, etc. State and local taxes are excluded from the estimates. The intent was to keep it simple and try to get at an 'average' family, but the average consumer unit probably has a drastically different after-tax income and savings rate than what I calculated.

Looking at the data from the Bureau of Labor Statistics, a few things jump off the page:
  • According to the BLS report, the recent recession started a trend of decreased spending, with the low point occurring in 2010. By 2012, spending had increased enough to overcome the previous high, seen in 2008.
  • Income increased for American Consumer Units, year over year, from 2010 to 2012. There is a 1.9% increase in pre-tax income from 2010 to 2011, and a 3% increase from 2011 to 2012.
  • Yet while income increased during these years, spending increased at a greater rate: 3.32% from 2010 to 2011 and 3.49% from 2011 to 2012. The increase in spending also outpaces the rate of inflation over this time, as measured by the Consumer Price Index, indicating a real increase in spending. Along the same lines, my estimates show a trend of decreasing savings rates over the same period, going from 9.6% in 2010 down to 7.9% in 2012.
  • Cash contributions saw the largest increase in any category in 2012: 11.2% over the prior year. The BLS states "this can largely be attributed to a 13.1% increase in cash contributions to churches and religious organizations".
  • The next largest increase was in transportation: an 8.5% increase from 2011 to 2012. Gasoline prices were stable in 2012, meaning the increase "can be traced to a 17.2% increase in expenditures on vehicle purchases from 2011 to 2012".
In a nutshell, the additional income that Americans earned in 2012 went to churches and cars. There's a country song in there somewhere. (The pastor run off with my lady, and they took my Chevy, too. I'd chase after them if I could, you know, but I've gotta clock in at two...) 

The data might not be as bleak as the picture I'm painting with the chart above. For one, my math is pretty dubious and should not be trusted. Additionally, a line that caught my eye was that for personal insurance and pensions. If retirement savings represent a large portion of that category (and the drivers are not expenditures, like car insurance), then savings rates might be a lot higher than I'm showing in the final row. (Though I'm not optimistic on that front. Other reports are showing single digit savings rates as well: as low as 3.7% in 2012.)

Regardless, with 65% of the average consumer unit's post-tax income going to the relative necessities of housing, transportation, food, and healthcare, achieving a high savings rate seems unlikely unless some pretty drastic changes occur. What could we do to improve this situation? The easy answer is to pay Americans more. But my guess is that would have little to no positive impact for people living paycheck to paycheck. The hard answer, but the one I know works, is to reduce the $6,500 ($550/month) the average American family is spending on food, the $2,600 spent on entertainment, and the $9,000 they spend on cars every year. Sell the fancy car, eat out less often, find cheaper date nights. Address that nebulous "other expenditures" category. A big win could come from reducing the $17,000 spent annually on housing, but that's a fairly reasonable figure per month (about $1,400), depending on where you live in the country.

It's the boring answer that you keep getting hit over the head with on these personal finance blogs, isn't it? Reduce expenses, and build wealth through frugality. But hey, it's the truth, and it works. I have admiration for those who go out and increase income dramatically, especially those who hustle in the evenings and on weekends to earn something on the side. A lot of families earn much less than the $65,596 noted in the BLS report, and surely could benefit from additional income. But unless expenses are first understood, then addressed, it's unlikely that additional income is going to drastically change things. Getting expenditures under control has to be the first step. Depending on your income level, it might be the only step.

How does your family's budget stack up to that of the average American Consumer Unit? My guess is that readers of this blog are pretty frugal, and probably blow away the average consumer in just about every category. But is there any category in which you spend more than the average American family? (Ours is entertainment. We spend at double that on travel alone each year.)


*Photo is from Gabriel and Flickr Creative Commons.



40 comments:

  1. I wrote a similar post last year when I found an info graphic about this (although my post is more about how I spend money). That average savings rate is depressing! But saving money is perceived as "boring" and it's not as acceptable to show off your 401k balance as a new car ;)

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    1. Oh, and I forgot to answer your question - housing is what blows up our budget. Plus we're trying to pay a little extra toward our mortgage, so it definitely represents a huge part of our yearly expenditures.

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    2. I figure if you're making additional payments, that should count as "savings" since it's an investment of sorts, and certainly provides a return on that money with the avoided interest.

      I liked your post, and that infographic is certainly better looking than my spreadsheet!

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  2. We're aiming for being a pretty average consumer unit total spending-wise, but mixing the priorities up there a bit. This year we'll probably spend a pretty penny on travel, which I don't see anywhere on the list for the average Joe. (Maybe under "everything else"?)
    But most of our wins and strong savings rate are coming from the work we've done to really increase our income. Mr PoP going into commission sales was definitely a game changer on that side of the equation for us.

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    1. Given the amount you guys are able to save on top of those expenses, I think getting spending in line with the average is pretty awesome.

      Good counterpoint on how an increase in income really turned the tide. In the right family's hands, a big jump in income can make all the difference. For most American families, my guess it that it'd be spent.

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  3. We spend $15k on housing a year, which I hate. Technically it's split between us though; $7k on my part doesn't look as bad! I am glad to see we are under on all the other categories though, which reinforces my belief that we've got a pretty solid budget going on. Sadly, I do think that as soon as the majority perceive their personal situation as improving, they loosen their wallets a bit.

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    1. That's good to hear you're under in nearly all categories, EM. Housing costs can only be reduced so much, unless you're willing to make some big changes (e.g. - take on roommates or move cities & jobs). In most cases, I think it's advisable to try to find the savings elsewhere and live where you like.

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  4. Definitely higher on the food, entertainment, and housing. People can control housing but not willing to live with others or build an inlaw. I find it ironic people are willing to live in apartments and share common elements but when it comes to housing they're not willing to.

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    1. I agree, Charles. We have no problem sharing our home with our renter, and love the benefits (income, someone to watch the pets when we travel, and friendship) a lot more than the downside. But know we're outliers in that regard. We're extroverts though; we need people.

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  5. Thank you. This makes me feel great about our expenditures. Especially since I know we can still do better. Done by 40 for sure!

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    1. I know you guys are way ahead of the averages posted here, MSquared. You'll beat us to the finish line. :)

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  6. Well... like any self employed person, I spend more than average on health care - at least I have in the past. Obamacare ought to ease that expense considerably. The other thing I spend more on is probably the "other" category - or wherever you'd put the cats... at this point they're my single biggest expense - though with one less now and everybody healthy (knock on wood) that expense ought to go down this year too.

    I have to say that I'm blown away by the amount people pay for housing and transportation. I guess if you have a family of four $1400/month could be reasonable for housing, and I know it depends on where you live, but that really seems like a big number to me. I guess I'm fortunate to have bought before the housing bubble and to now have the mortgage paid off, but I can't help but think that people might be happier if they'd compromise a bit on the size and location of their abodes - and also if they'd choose housing closer to their jobs or vice versa. I know it's not always that simple, but I think I'd rather make less money, and live in a smaller place where I didn't have to sit in traffic for hours every day than deal with the crazy commutes that are considered "normal" these days.

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    1. Yeah, I wasn't sure how to react to that $1400 figure. I don't see utilities broken out as a separate expense, so I thought that might be included in the $1400. And in many (most?) parts of the nation, that's a reasonable cost once utility costs, property taxes, repairs (?) & PITI are factored in. It's hard to know what all is included in that figure.

      I'm happy to hear that Obamacare might be lowering those premiums for you! I'm a supporter of the program and will take any good news I can get!

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    2. Our housing is actually quite a bit higher than the average shown. Most folks I know have a mortgage that's more than $1400; I do believe SLC has a higher housing cost than other areas. Our unhumble abode costs us $22K+/year with just the mortgage and taxes, but we wouldn't trade it for anything. Everyone has their priorities, but I otherwise agree entirely in getting housing costs down. Too many people sacrificing their financial security for stucco homes stuck right next to one another in suburbia.

      Obamacare isn't a win for everyone. For healthy entrepreneurs, it really stinks. We are losing an amazing $200/mo health plan (covers me and the kids) and it looks like the monthly costs will double starting Jan 1st 2015 - in order to add in maternity and force our deductible lower, among other Obamacare minimum care mandates.

      Loved the stats and all of the comments have been really interesting!

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    3. Thanks for the data point on housing, Emily. It's good to remind ourselves that, in a lot of great places in our nation, $1400 a month isn't buying you a whole lot. But as you noted, people need to prioritize their spending according to their values, and in the context of what they make. I may want a beautiful house in Utah, but if my family is only clearing $25k a year, either a job change or a location change may be in order.

      I'm sorry to hear that Obamacare is increasing your premiums so much. I am hoping more options are made available for young, healthy families who are willing to take on less coverage in exchange for lower premiums. We'd fit in that bucket now, too: we go to the doctor just once or twice a year.

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  7. Looking at the figures and roughly translating into GBP I would say I am very similar to the average American consumer unit, which is a slightly depressing sentence to be writing :)

    We beat the average on food and income but overspend on entertainment / travel compared to those figures for sure!

    I saw some research suggesting UK savings rates were even lower than those in the US recently as well so apparently we are even more doomed to work for eternity (on average) than you are!

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    1. Huh, I figured we were the worst in the developed world, as far as savings go. In the spirit of the Olympics, I'll take that as a win for the USA. We're not the worst! We're not the worst!

      Depending on income, having that level of expenditure might be totally fine. And I see you're above a 50% savings rate, too...which is awesome. Once you're in that range, it doesn't really matter how many total dollars/pounds you spend.

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  8. The positive trend here is that consumers are saving and earning more, but in my opinion, it isn't enough because the job market is still very uncertain. I agree that a decent amount of money can be saved by staying away from new, expensive cars. I recently read an interview of a millionaire who suggested you buy good car, the best quality you can afford, then stick with that car till it can't be used anymore. That's how you save money...

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    1. Well, they're definitely earning more. I'd say the trend is that they're saving less, at least when compared to the bottom of the recession. (But my math is totally dubious, and I could be very wrong.) :)

      Great advice on limiting car expenses. The outcome of that approach is simply buying fewer cars over a lifetime. That alone could build wealth.

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  9. Really liked how you displayed the data! Since I've been tracking expenses since mid-2012 I might have to bounce this against our spreadsheet, just out of curiosity. It's too bad they lump all "consumer unites" together so broadly. It's basically impossible to have an apples-to-apples comparison imo.

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    1. Thanks, David! I spent a good amount of time with that spreadsheet, so it's great to get some good feedback.

      I agree that the data is lumped together a bit sloppily, so it's hard to get granular information (e.g. - how much did people spend on electricity?). But I could see it getting to be an eye chart if we got that specific, too.

      If nothing else, I think the total amount spent provides a great benchmark. If you're spending less than $51k total, you're beating the average American household.

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  10. We're way above average on the housing and "everything else", assuming everything else includes daycare - we spent $16,583 just on daycare last year - almost as much as the average housing. We live in a high cost of living area though, so that's to be expected. We spend a lot less on apparel, healthcare and personal insurance though. Our entertainment is probably a bit higher, but it tends to be spent in chunks (this year we'll spend a lot, last year, a few hundred).

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    1. Thanks for sharing those specifics. Daycare really can be a huge cost, and it varies so much in different parts of the nation. I'm surprised it did not show up in the survey: maybe it's under "everything else" as you noted.

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  11. $550 a month on food doesn't sound too outrageous for a family. I admittedly spend around $300/month on food for a month just for myself, and that's mostly groceries. Though I do understand and agree with your overall point. We are definitely a consumer society.

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    1. Hi Stefanie. $550 a month is certainly an understandable food budget, but one that probably be addressed if the average person wants to improve their savings rate. Though, like housing, it might be another scenario in which it's better to look elsewhere for savings first.

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  12. You mentioned that increased pay would make a difference but I'm in agreement with your final conclusion; it's spending that has to be addressed. The increased pay would help those in absolute poverty but those who are making the average salary listed in the BLS numbers that increase would find its way into one of the spending categories listed. Lifestyle inflation is a real affliction of our society...

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    1. Hey, Stoic! Thanks for stopping by and commenting. You make a good point about people in absolute poverty: all the frugality in the world isn't going to help a person making minimum wage get rich. In their case, income ought to be the first issue to address.

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  13. For me it totally depends on what I'm bringing in from month to month. I have a tendency to try to ignore statistics and keep on decreasing expenses (without having a boring, shitty life) and increase income. With both, comes increased savings. Simple math for me.

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    1. I love the approach, Tonya! Ignoring what's average and just trying to improve your own spending/income will yield better results.

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  14. I found the food category interesting. We spent $5800 on food last year, but that was all "in house" food and didn't include eating out, and of course, there's six of us. Entertainment we spent $887 on regular stuff, and $704 on our staycation. So foodwise, we're about equal with the report, but we spent much less of our food eating out. I can't imagine spending $2700 a year on restaurants, but it wouldn't be hard to do with the six of us.

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    1. Hi, Laurie! With a family of eight, I'd say that's an awesome achievement to be in line with the average American Consumer Unit, considering that is a family of 3. All things being equal, you're at 3/8ths of the cost per person.

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  15. Great post DB, we prolly overspend on food, mainly because we eat out a fair amount. Its hard to rush home after work and prepare a meal, then get the little one a bath, read stories and have a few minutes left over to sit down. Eating on the fly at places like subway is quite helpful.

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    1. We do a lot of the same things, Jim. Some days, after work, I just want some takeout. We try to choose an inexpensive option like you do, with Subway, just to limit the impact.

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  16. Interesting post, nothing really seems to be out of the ordinary and it's not like people are spending that excessively. From other information I have seen I would have to agree that saving reached its peak during the recession and is now trending back down to the lows it was at before the recession.

    I do agree that the transportation and food outside the home costs are where the most cuts can be made, as boring as that sounds. That is assuming that gas prices remain about the same.

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    1. I hear what you're saying, Debt Hater. The individual expenditures don't seem that crazy. But I'd take the position that the spending actually is pretty excessive, but that's from within the context that people are spending 90-93% of what they make. If we assume some additional taxes, like state taxes, then it could be something like 95%.

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    2. Where is the interest on debt tallied?

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    3. Hi there, Shop Teacher. I don't know where debt payments fit into the BLS statistics, if at all. If I had to guess, I'd say they are either built into the categories (e.g. - mortgage interest in Housing) or under All Other Expenditures.

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    4. Thx...I don't carry that kind of debt but if you believe the media the interest could add up to a couple hundred a month easy!

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    5. That's great to hear that you're not burdened by that kind of debt. I know people, even within my family though, who carry five (and six!) figures of consumer debt. Those monthly interest amounts are definitely possible.

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  17. Thank you for writing your articles...I enjoy reading them!

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