How Americans Spend their Money (pictocharts)(nytimes.com)
nytimes.com
How Americans Spend their Money (pictocharts)
http://www.nytimes.com/imagepages/2008/02/10/opinion/10op.graphic.ready.html
28 comments
You may also try reading it like this: only the fifth richest have money to save. Due to the inflexibility in cost of necessary commodities (food, housing) one may mistakenly read that as 'the poor trying to live like the rich,' but that is far from the case.
Let's assume that you spend $200 a month (a fairly meagre amount) on food; that would be $2400 a year. And you also spend $600/month on rent (a fairly low/middling amount). That's $7200 a year. Combine the two and you get $9600.
That's already >90% of the TOTAL income of the lowest bracket. The lack of savings among the poorer members of our society has less to do with trying to 'live like the rich' than with 'not being able to do so.'
Let's assume that you spend $200 a month (a fairly meagre amount) on food; that would be $2400 a year. And you also spend $600/month on rent (a fairly low/middling amount). That's $7200 a year. Combine the two and you get $9600.
That's already >90% of the TOTAL income of the lowest bracket. The lack of savings among the poorer members of our society has less to do with trying to 'live like the rich' than with 'not being able to do so.'
Due to the inflexibility in cost of necessary commodities
Really? So are all the people driving around in lowered SUVs with giant chromed rims rich? Or are you saying that lowered SUVs with giant chromed rims are a necessary commodity?
Really? So are all the people driving around in lowered SUVs with giant chromed rims rich? Or are you saying that lowered SUVs with giant chromed rims are a necessary commodity?
I think it's cute that you skirted my main point.
A car isn't a necessary commodity. Food is. Housing is. Cars aren't. For the poorest Americans, the necessary acts of eating and securing shelter consume the vast majority of their income.
Secondly, what makes you think that someone who's driving a 'lowered SUV with giant chromed rims' can't afford it? Implicit racial bias? Why did you pick this example? Why not something closer to home: Did every douche in Silicon Valley with a BMW pay for it outright?
A car isn't a necessary commodity. Food is. Housing is. Cars aren't. For the poorest Americans, the necessary acts of eating and securing shelter consume the vast majority of their income.
Secondly, what makes you think that someone who's driving a 'lowered SUV with giant chromed rims' can't afford it? Implicit racial bias? Why did you pick this example? Why not something closer to home: Did every douche in Silicon Valley with a BMW pay for it outright?
In a consumer culture, where entertainment, experience, and stuff is what life is about, why would anyone save? What are you saving for?
I would imagine with multiple huge revolutions in recent memory, people in China might have a reason for a different outlook. It is actually totally backwards, because a poorer nation can expect to grow at a much faster rate than a developed nation -- you just need to take off the brakes in the system for it to happen. If you ignore the shaky history, you'd have to be pretty dumb to save money when the economy is growing at 10% annually for a decade (unless that savings is in the form of investments, but it usually isn't)
I would imagine with multiple huge revolutions in recent memory, people in China might have a reason for a different outlook. It is actually totally backwards, because a poorer nation can expect to grow at a much faster rate than a developed nation -- you just need to take off the brakes in the system for it to happen. If you ignore the shaky history, you'd have to be pretty dumb to save money when the economy is growing at 10% annually for a decade (unless that savings is in the form of investments, but it usually isn't)
If you turn off the TV for a few minutes, you'll realize that "entertainment" and "stuff" is not "what life is about", and experiences can be had on the cheap.
I'm talking about trends in society, not my particular views. I don't think anyone can say "what life is about" (including you), but I think my comment was fair. Look at what people spend their time and money on, and you'll see what they care about. The richer people get, the more things become about experience, as opposed to consumer good consumption.
"experiences can be had on the cheap."
You're right. Back to the original point: why would people save if their priorities are about consumer good consumption, and then good experiences once they have all the stuff they want?
More generally, I think the bias towards saving is a too abstract view about macroeconomic conditions. Credit is actually really, really cheap these days.
Things are really cheap, and experiences can be too.
"experiences can be had on the cheap."
You're right. Back to the original point: why would people save if their priorities are about consumer good consumption, and then good experiences once they have all the stuff they want?
More generally, I think the bias towards saving is a too abstract view about macroeconomic conditions. Credit is actually really, really cheap these days.
Things are really cheap, and experiences can be too.
What do you mean by "take off the brakes"?
Trade restrictions, high taxes, institutional corruption, ambiguous private property rights, lack of viability in contracts...
You'd be amazed at how badly it seems some 3rd world countries want to fail.
You'd be amazed at how badly it seems some 3rd world countries want to fail.
How about a culture of violence and thievery? That takes decades of sustained effort to change, if not centuries. The things you've listed are merely symptoms. Saying that some 3rd world countries want to fail is like saying that endangered species want to go extinct.
But boy, take off those brakes and those countries can go fast! They get to use 150 years of Western industrial experiences and lessons learned without having to figure it out by trial and error.
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This is ultimately why consumption taxes are a dangerous thing, despite how logical they seem. They are designed to create incentives for saving, but will merely punish those who have no ability to save in the first place.
At the same time, it might discourage some of what you are describing (living larger than your means). I think that might be the case for some portion of the bottom fifth and a large portion of the second fifth (McMansions, leased cars, etc etc).
At the same time, it might discourage some of what you are describing (living larger than your means). I think that might be the case for some portion of the bottom fifth and a large portion of the second fifth (McMansions, leased cars, etc etc).
Somehow, Americans had the ability to save fifty years ago, when they were much, much poorer. Did the cost of living go up radically since then? Or are they pretty sure that people who think like you will make sure they don't pay for their profligate nature?
I think it's a combination of both. If you give people money now and tell them they have to pay it back with interest later, some fraction of them will spend it anyway without any regard for whether they will be able to pay it off later. This drives up the price for people that are financially prudent and refuse to spend borrowed money on consumer goods. They get priced out of the market by folks who don't care about future repayment, and so either have to do without (not practical for basic necessities) or get caught up in the borrow-and-spend spree.
This is a lot of what's happening in the college tuition and real-estate markets. Because lots of loans are available for education, the price of a college education goes up to accommodate the extra money floating around, pricing out the people who want a college education but are not willing to spend borrowed money on it. Because lots of mortgages are available for housing, the price of a house goes up to accommodate the extra money floating around, pricing out folks like me who refuse to take a 0% down interest-only loan and forcing us to rent or live with our parents.
It continues until people either come to their senses (leading to a deflationary spiral that bleeds all the excess credit out of the system) or lose all sense entirely (leading to hyperinflation, the fall of whatever government is in power, and an economic "reboot" where the government issues new currency and declares all savings and debts denominated in the old currency as invalid). I'm betting on deflation, personally, since I think Americans are too smart to get sucked into hyperinflation. But I could certainly be wrong about that.
This is a lot of what's happening in the college tuition and real-estate markets. Because lots of loans are available for education, the price of a college education goes up to accommodate the extra money floating around, pricing out the people who want a college education but are not willing to spend borrowed money on it. Because lots of mortgages are available for housing, the price of a house goes up to accommodate the extra money floating around, pricing out folks like me who refuse to take a 0% down interest-only loan and forcing us to rent or live with our parents.
It continues until people either come to their senses (leading to a deflationary spiral that bleeds all the excess credit out of the system) or lose all sense entirely (leading to hyperinflation, the fall of whatever government is in power, and an economic "reboot" where the government issues new currency and declares all savings and debts denominated in the old currency as invalid). I'm betting on deflation, personally, since I think Americans are too smart to get sucked into hyperinflation. But I could certainly be wrong about that.
According to the graphic with the story (http://www.nytimes.com/imagepages/2008/02/10/opinion/10op.gr...) the 50th percentile American had a fridge, a stove, electricity, and a radio. There's a lot more stuff to buy, and people value the convenience and utility of other stuff (Cell phone, washer, computer, internet) a lot.
In that case, I don't see why this is so bad. They value efficiency, so they borrow money and pay back the debt by working harder and more efficiently. I can see how investing in a refrigerator, stove, computer, and internet access would be worth it even if you put them all on a credit card at 20%; I wouldn't have a job without a computer and internet access, and I wouldn't have time to work without refrigerated food.
Since this chart is careful not to adjust for age, we don't know if this is a story about 20somethings borrowing to start a family, 50somethings earning a lot of money at their peak careers, and 70somethings living off of the interest in their retirement accounts. In other words, this kind of chart could portray a totally egalitarian society in which everyone earns the same amount over a lifetime, but they earn it at different times.
Thanks for adjusting the chart so there's no way to know that, NYT! I'm glad your writers don't have an agenda I should worry about!
Since this chart is careful not to adjust for age, we don't know if this is a story about 20somethings borrowing to start a family, 50somethings earning a lot of money at their peak careers, and 70somethings living off of the interest in their retirement accounts. In other words, this kind of chart could portray a totally egalitarian society in which everyone earns the same amount over a lifetime, but they earn it at different times.
Thanks for adjusting the chart so there's no way to know that, NYT! I'm glad your writers don't have an agenda I should worry about!
Yep, it's a fascinating graphic that hides as much as it reveals. And you could pry my home computer, my internet, my washer/dryer, and my microwave from my cold dead fingers. Actually, out of the 16 items listed in the bottom chart, I could probably do without telephone, radio, vcr, color tv, cell phone, and dishwasher. Auto, stove, and AC grudgingly (depending on where I lived). But my wife would never agree to that!
There is more stuff, but it's also cheaper. It's possible that all of the "essential" stuff now costs less in percentage of income than all of what was considered essential then cost then.
There are actually very few goods and services that objectively increase your productivity or quality of life. Almost all of them were already mentioned in this thread. The rest are bought for social status or out of delusion.
Edit: I am only talking about things that are bought by general public. If you are rich, there are certainly worthwhile things to spend your money on, like travel.
There are actually very few goods and services that objectively increase your productivity or quality of life. Almost all of them were already mentioned in this thread. The rest are bought for social status or out of delusion.
Edit: I am only talking about things that are bought by general public. If you are rich, there are certainly worthwhile things to spend your money on, like travel.
I added up the elements of that graph that seemed essential, I even left out ones that might be skewed (transportation, clothing, etc) because it's possible to spend money there in excessive ways - for the bottom 20% it was $11,033, which is still higher than the income base. That was only including food, housing, healthcare, and taxes.
I don't think the bottom fifth of Americans is buying foie gras and living in huge houses. Try McDonalds and subsidized housing. That doesn't even include things we would consider essentials to being a productive member of society - transportation, a phone, electricity, etc.
I think the savings rate of the bottom 5th probably hasn't changed much in 50 years. It's the savings rate of the 2nd and 3rd 5ths that has become completely skewed by loose credit and profligate spending (again, I wish I had the data to back up this thesis)
I don't think the bottom fifth of Americans is buying foie gras and living in huge houses. Try McDonalds and subsidized housing. That doesn't even include things we would consider essentials to being a productive member of society - transportation, a phone, electricity, etc.
I think the savings rate of the bottom 5th probably hasn't changed much in 50 years. It's the savings rate of the 2nd and 3rd 5ths that has become completely skewed by loose credit and profligate spending (again, I wish I had the data to back up this thesis)
Huh. When I was in the bottom 20%, I moved to a really terrible neighborhood and ate mostly rice and oatmeal. In my terrible neighborhood, I saw lots of people who wore much nicer clothes than me, but who, uh, didn't seem to have jobs. Lots of them had iPods -- some of them also had sound systems which they used well after midnight, perhaps in order to broadcast some sort of distress signal audible at the New York Times headquarters. I have a better job now; the average income, poverty rate, unemployment rate, incarceration rate, etc., of the neighborhood I left does not appear to have improved. I did not find it very hard to live on $700 a month when that's what I had to live on. And that was in one of the more expensive cities in the world. I think they can do better, and I do think it's their fault that they don't.
Credit cards. American Express and (what is now) Visa issued their first credit cards in 1958. Before credit cards, it was difficult for an individual to borrow against future earnings (this is essentially what buying using credit is)
Consumer credit has been around a long time; it's part of what drove the boom in the 1920s. And loan sharks are even older -- the difference with credit cards is that their interest rates are lower, and that you can efficiently borrow in smaller increments.
Consumer credit was very popular in the 20s and then fell out of favor for a long time, from the 30s all the way up through the 1970s. Possibly because people discovered what a terrible idea it was in 1929. ;-)
I've been talking with my parents about this lately - up until the late 1960s, people almost never bought stuff on credit. If you didn't have money for a car, you walked or took public transportation until you could save up for it. You waited to buy the latest consumer gadgets, you didn't pay them off later. If you couldn't afford the down-payment on a house (which was nearly always 20%, non-negotiable), you rented until you could.
I was born in the early 1980s, and my first money lessons were always "Save up for what you want - you can't buy stuff you can't afford, regardless of whether anyone says you can." I suspect that my generation and the tail of Gen-X was roughly when that changed; nowadays, it seems like kids are being taught "Okay, you can have it, just charge it to plastic."
I've been talking with my parents about this lately - up until the late 1960s, people almost never bought stuff on credit. If you didn't have money for a car, you walked or took public transportation until you could save up for it. You waited to buy the latest consumer gadgets, you didn't pay them off later. If you couldn't afford the down-payment on a house (which was nearly always 20%, non-negotiable), you rented until you could.
I was born in the early 1980s, and my first money lessons were always "Save up for what you want - you can't buy stuff you can't afford, regardless of whether anyone says you can." I suspect that my generation and the tail of Gen-X was roughly when that changed; nowadays, it seems like kids are being taught "Okay, you can have it, just charge it to plastic."
I won't speculate on the nytime's possible editorial status on the question of class politics, but the bulk of the disparity has to do with the fact that young people tend to go into debt, adults tend to earn and save, and old people tend to divest.
Agreed. A couple years ago I was a married student with a kid and a $17K stipend, taking out $XX,000 in loans. Now I'm not borrowing any more money (well, except the house), paying back tons every month, and earning many times what I was then. In two years, I moved from the 20-40% to the 60-80% quintile just by graduating and working. So I'd agree that those bottom two quintiles are distorted by students (not sure how much though)
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the article is actually about how consumption -not income- is the best measure of financial well-being.
http://www.nytimes.com/2008/02/10/opinion/10cox.html?_r=1...
http://www.nytimes.com/2008/02/10/opinion/10cox.html?_r=1...
I bet this was not always so in America, and I bet it is not so now in China.