How The Average U.S. Consumer Spends Their Paycheck(visualeconomics.com)
visualeconomics.com
How The Average U.S. Consumer Spends Their Paycheck
http://www.visualeconomics.com/how-the-average-us-consumer-spends-their-paycheck/
12 comments
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Interesting that they chose not to consider taxes an expense, even though many things around taxes are decision-based (such as whether to defer income, what types of investments to make, etc)
If they had shown taxes, by my calculations it would be the second biggest expenditure, just after housing.
If they had shown taxes, by my calculations it would be the second biggest expenditure, just after housing.
~25% straight off the top (obviously changes depending on income). In CA another 10% for sales taxes. The 6-7% the employer pays that you don't even see.
On top of that the government inflates the currency every year by 3-5%
this isn't even taking into account the fact that producers of goods pay all these taxes as well, so that tax gets factored into the price we pay for the item even before sales tax. I'd say that another 5% for this is being conservative.
all told taxes suck 50% of our productivity out easily.
if you got a 50% raise tomorrow you think you couldn't afford private security, private schools for your kids and replacements for all other government services with greatly increased quality and lower prices?
On top of that the government inflates the currency every year by 3-5%
this isn't even taking into account the fact that producers of goods pay all these taxes as well, so that tax gets factored into the price we pay for the item even before sales tax. I'd say that another 5% for this is being conservative.
all told taxes suck 50% of our productivity out easily.
if you got a 50% raise tomorrow you think you couldn't afford private security, private schools for your kids and replacements for all other government services with greatly increased quality and lower prices?
"On top of that the government inflates the currency every year by 3-5%" Do you mean the inflation? Is so, this is more around 2%, and not directed by the government.
um...the federal reserve directly controls the interest rate paid by banks, which affects how much money is injected into the system. via the money multiplier new money disseminates out into the economy, causing inflation.
how is it not government?
how is it not government?
The federal reserve does not control the price of oil for example. Controlling inflation is one of its function. Again: controlling it, not setting the inflation rate. For example, there are/were fear of deflation when the inventory was high, and the demand low. With a interest rate set at pretty much 0%, there is not much else the reserve bank can do.
So I stand by my statement, the government does not "inflate the prices by 3-5%" a year.
So I stand by my statement, the government does not "inflate the prices by 3-5%" a year.
interest set to 0% certainly is inflationary since that means real interest is negative. government doesn't control the prices of commodities directly, but if the money supply was kept static you'd get continual mild deflation.
I don't see any debt factored in, such as paying off student loans and the interest accrued from credit cards.
Not to mention if you are a current full time student, you have to swap insurance or housing for education. Heck, I feel like most of that circle should be education.
It's an aggregate over all households. People are students for 4 of the ~60 years of their adult lives, so only 1/15 are full-time students. (Perhaps more, as this doesn't count grad school or two college-educated people getting married and becoming one household. But it also doesn't count the people who don't go to college at all, which is an even bigger proportion.)
Given that a very disproportionate amount of the average US income is from a few people making a lot of money, I'm not convinced that looking at expenditures averaged over the population is in any way indicative of the situation of someone making median income. (According to Wikipedia/US Census Bureau, 2007 median household income was $50k, quite different from their average of $63k.)
Interesting. For reference, rough figures from Finland:
- housing 28% - transport 15% - groceries 12% - culture and spare time 11% - personal well-being, extra studies, etc. 11.5%
Personally, I can confirm that living costs (i.e. rent or mortgage) indeed do chop the most off my salary but food comes already as the second, but then again I eat well :)
- housing 28% - transport 15% - groceries 12% - culture and spare time 11% - personal well-being, extra studies, etc. 11.5%
Personally, I can confirm that living costs (i.e. rent or mortgage) indeed do chop the most off my salary but food comes already as the second, but then again I eat well :)
America's obsession with cars explains the high transportation outlay (currently > 17%). So many assume that they have to buy new cars (preferably luxury brands, which connote status) and change them every x years. They'll buy them on layaway even if they can't afford the payments.
Also America's size...
Very surprising that people spend 34% of their income on housing. I have always thought it unwise to spend more than 25% -- a big reason why I still rent even when people were telling me I was "throwing my money away".
I'm surprised it isn't more. In places on the East and West coast you have to spend close to half your take home income or else live in a complete crime ridden run down ghetto.
In Wichita and Tulsa (where I have lived) spending half your income on rent or a mortgage would be considered insane.
I'll hazard a guess that the 25% figure refers to rent and mortgage payments only. If I'm understanding the chart correctly, that's what it calls "shelter" -- just one part of "housing", which accounts for 20.2% of expenditures.
It's a little unclear from the chart. But if you have a mortgage, you pay lots more in taxes (the "public services" bit), household insurance, and in repairs.
If you own a home you mean. If you have a mortgage, the interest is tax deductible, so you pay a lot less in taxes for at least the first half of the term.
It may be different in other parts of the country. In Florida, the property taxes alone were more than the cost of renting a similar place. So for a $300K condo you paid almost $13,000 in taxes to the city to pay for water roads, schools, etc.
How were the people renting out the properties able to do that for less than their property tax?
The magic of expected future capital gains.
Interesting thing to note: The average 'consumer unit' spends 4.8% of their income on gas/oil. So when the price of oil goes up about 20%, it requires roughly 1% more of their annual income... and yet people still claim that the price of gas is 'killing them'.
It's not the 1% that's killing them - it's the fact that they're spending at their limit and they don't have that 1% available.
"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." -- Charles Dickens, 'David Copperfield'
"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." -- Charles Dickens, 'David Copperfield'
I think this point doesn't get enough attention from people whose salaries are big enough to save lots of money. If you make $60K after taxes and spend $30K, then you can easily eat a $300/year increase in gas expenditures. Your savings rate goes from 50% to 49.5%, big whoop. But if you make $31K and spend $30K, and gas goes up $300/year, it's eaten up a whole 30% of your savings rate. And if you make $30K and spend $30K and gas goes up, you're screwed.
An effective 1% pay cut you weren't planning for could be a big deal.
But also: we've seen swings of +95% within the past 3 years -- so at the peak, people were complaining about an effective 5% pay cut.
And not everyone complains. I have a tiny commute, a professional job, and live in an expensive city where housing costs dominate -- so even double the gas price is a curiosity ("OMG I've never seen a tank cost that must") rather than a serious pain-point.
On the other hand, many people are far above that 4.8% average spend. They have long commutes and fuel-inefficient cars. Poor people, especially, tend to spend relatively more of their income on gas.
So when the price of gas goes up 95% (as it did from Jan-2006 to Jun-2008), and you have an older car and above-average commute -- you may have just taken a 10%-plus pay cut, when you may have been living hand-to-mouth already. Such people are honest about higher gas prices "killing them".
But also: we've seen swings of +95% within the past 3 years -- so at the peak, people were complaining about an effective 5% pay cut.
And not everyone complains. I have a tiny commute, a professional job, and live in an expensive city where housing costs dominate -- so even double the gas price is a curiosity ("OMG I've never seen a tank cost that must") rather than a serious pain-point.
On the other hand, many people are far above that 4.8% average spend. They have long commutes and fuel-inefficient cars. Poor people, especially, tend to spend relatively more of their income on gas.
So when the price of gas goes up 95% (as it did from Jan-2006 to Jun-2008), and you have an older car and above-average commute -- you may have just taken a 10%-plus pay cut, when you may have been living hand-to-mouth already. Such people are honest about higher gas prices "killing them".
Fair enough. And it's true that poorer, or more rural, drivers spend a much higher percentage of income on gas. See excellent graphic by the NYT on this:
http://www.nytimes.com/interactive/2008/06/09/business/20080...
I think I was reflexively lashing out against some people I know that constantly complain about gas, yet choose to drive large trucks and definitely aren't struggling to make ends meet. For them I suppose it's just another topic for small talk, much like the weather.
http://www.nytimes.com/interactive/2008/06/09/business/20080...
I think I was reflexively lashing out against some people I know that constantly complain about gas, yet choose to drive large trucks and definitely aren't struggling to make ends meet. For them I suppose it's just another topic for small talk, much like the weather.
Maybe those people should buy oil futures, or stock in energy companies then. That way, when oil prices rise, they can cash in on their investment and cancel out the higher gas prices. If they have some financial leeway, they don't have to be a slave to gas prices.
I met very few people who complain that the price of gas is 'killing them'. What you hear is the voice of a minority who either spend much more on gas or just like to complain about it.
Edit: why the downvote? Doesn't it make sense that those who are vocal about how gas prices are killing them are those who spend _way more_ than the 'average consumer unit'?
If gas represents 20% of your income instead of 5%, you are much more likely to complain when prices go up. This will be the case for people who make less than average, have long commutes and older cars.
Edit: why the downvote? Doesn't it make sense that those who are vocal about how gas prices are killing them are those who spend _way more_ than the 'average consumer unit'?
If gas represents 20% of your income instead of 5%, you are much more likely to complain when prices go up. This will be the case for people who make less than average, have long commutes and older cars.
Maybe it's because people make such a big deal about it. You see the price of gas a couple of times each time you got to work and news anchors will do a story about the price of gas each time it goes up a couple cents. In contrast, we never see the price of bread or jam as often as we see the price of gas. I guess it's an observational bias.
If the price of gas/oil goes up, the price of other goods goes up as well. But that's probably not what they're complaining about ;)
> The average 'consumer unit' spends 4.8% of their income on gas/oil.
That's only counting direct expenditures. Gas/oil is an expense for almost every other cost as well, especially food.
That's only counting direct expenditures. Gas/oil is an expense for almost every other cost as well, especially food.
$457/yr for liquor seems pretty small for a family with 2 adults.
And why is tobacco counted for the "average" person? I'd think the average person wouldn't be a smoker.
And why is tobacco counted for the "average" person? I'd think the average person wouldn't be a smoker.
Simple math. If one person in ten spends 10% of their income on tobacco, then the average person spends 1% of their income on tobacco.
More families than you think spend $0/yr on liquor.
I don't have a 'family', but I only spend maybe $250/yr on alcohol, and my girlfriend doesn't spend any, and we are in our mid-20s.
It's not for any moral reasons. I only drink beer that I think is tasty, and then pretty much only with meals at restaurants. She just really doesn't like the taste of alcohol.
It's not for any moral reasons. I only drink beer that I think is tasty, and then pretty much only with meals at restaurants. She just really doesn't like the taste of alcohol.
I'd like to see this adjusted for higher cost-of-living locations. For example, in Chicago 34% on housing might be on the low side.
Any coincidence that this is a government publication and that it doesn't show taxes?
Yes it does. `Income before taxes: $63,091', `AVERAGE ANNUAL EXPENDITURES: $49,638'.
Computes to $13.453 paid in taxes. That's about 21% of gross income, and compares to expenditures as about 27%. It is my understanding taxes aren't considered expenditures or `costs' anyway.
The ring breaks down the expenditures, not the gross income. Whether this is fair or not is up to a democratic debate ;)
Computes to $13.453 paid in taxes. That's about 21% of gross income, and compares to expenditures as about 27%. It is my understanding taxes aren't considered expenditures or `costs' anyway.
The ring breaks down the expenditures, not the gross income. Whether this is fair or not is up to a democratic debate ;)
Wow US tax rates are low (compared to Australia at least).
This varies heavily by location. Several percentage points or more.
It would be a lot more in, say, New York or San Francisco, whereas it'd be a lot less in, say Tampa or Austin.
It would be a lot more in, say, New York or San Francisco, whereas it'd be a lot less in, say Tampa or Austin.
Okay cool.
Australia doesn't have state taxes on income (see: http://en.wikipedia.org/wiki/South_Australia_v_Commonwealth).
Instead states taxes tend to be particular levies for works or "stamp duty" on purchases (e.g. cars/houses).
However, when I put the figures through using current exchange rates, AU income tax would be $14,352 US on that amount (around 29% compared to the original 21%) and our tax rates and thresholds have dropped quite significantly recently.
Australia doesn't have state taxes on income (see: http://en.wikipedia.org/wiki/South_Australia_v_Commonwealth).
Instead states taxes tend to be particular levies for works or "stamp duty" on purchases (e.g. cars/houses).
However, when I put the figures through using current exchange rates, AU income tax would be $14,352 US on that amount (around 29% compared to the original 21%) and our tax rates and thresholds have dropped quite significantly recently.
Don't forget the 10% GST/VAT on almost all purchases.
We have a heavily graduated tax system though, so looking at the taxes for only one income isn't very telling.
There doesn't seem to be any savings indicated, so I would think that the difference between income and expenditures would also include that.
Unless, of course, people spend more than they earn net of taxes. But who would do that?
> Income before taxes: $63,091'
Some taxes are paid on income, other taxes (such as sales) are paid on expenditure. Other taxes (such as property, including cars) are billed directly or lumped into something else (rent).
Some taxes are paid on income, other taxes (such as sales) are paid on expenditure. Other taxes (such as property, including cars) are billed directly or lumped into something else (rent).
It's not clear that taxes has to make the balance. There is no entry for savings, for example, nor for debt service. I guess they classified "expenditures" as not including savings, as that's not really expending anything.
"Yes it does."
No, it doesn't. You proved it yourself. You had to do some math to figure it out.
The reason taxes don't appear on this U.S. government publication is the same reason that they take withholding out of your check. If you actually saw what it cost you each year, it would piss you off so much you might actually get off your butt and do something about it.
No, it doesn't. You proved it yourself. You had to do some math to figure it out.
The reason taxes don't appear on this U.S. government publication is the same reason that they take withholding out of your check. If you actually saw what it cost you each year, it would piss you off so much you might actually get off your butt and do something about it.
The less cynical explanation is that people are generally horrible at saving money, so withholding is the only way the taxes would get paid by most people. It reduces risk to the government that people won't have the cash on hand at the end of the year and just declare bankruptcy or otherwise claim they can't pay. Businesses don't have withholding, but they have quarterly tax payments for the same reason I'd bet.
This is the reason that withholding is used by individuals to fund their retirement plans and other rainy day savings accounts. It's too easy to fritter the money away if you actually get your hands on it.
I would agree with you that it'd be helpful to see taxes as a section of the pie chart here, but presumably the focus here is what people choose to spend their money on, and taxes aren't much of a choice.
This is the reason that withholding is used by individuals to fund their retirement plans and other rainy day savings accounts. It's too easy to fritter the money away if you actually get your hands on it.
I would agree with you that it'd be helpful to see taxes as a section of the pie chart here, but presumably the focus here is what people choose to spend their money on, and taxes aren't much of a choice.
but presumably the focus here is what people choose to spend their money on, and taxes aren't much of a choice.
Taxes are the rent you pay for choosing to live in the USA.
Taxes are the rent you pay for choosing to live in the USA.
Well yeah, but I mean you can't really choose you level of tax payments as an individual. I can choose to leave and not pay any, but I can't say "better cut back on my taxes this month to make ends meet".
I'm not complaining about my taxes. I think there are tons of things we could do to improve how we spent tax revenue, but I wouldn't say we are overtaxed.
I'm not complaining about my taxes. I think there are tons of things we could do to improve how we spent tax revenue, but I wouldn't say we are overtaxed.
I didn't "choose" to live in this country.
I was born here. And without open borders to make residence in multiple countries, we are not "free" either.
I was born here. And without open borders to make residence in multiple countries, we are not "free" either.
You choose to stay. A person may be born in an apartment, but that doesn't mean they can live there rent free for the rest of their life. And yes, you are not just free to walk into some other country and live there. But nor are you are allowed to walk onto someone else's property and live on it.
I'm not sure if your reasoning for this is the same as our mutual friend MM's, but I've been meaning to address it, so I might as well do that here. To take your position, I think you first have to admit that USG is the de facto owner of all US territory. You, MM, and I would probably have no problem admitting this, but most people would have trouble with it.
But even after we admit this, we still need to ask if this ownership ought to be treated as legitimate, and there I disagree with MM.
But even after we admit this, we still need to ask if this ownership ought to be treated as legitimate, and there I disagree with MM.
I think that the principle of Adverse Possession applies ( http://en.wikipedia.org/wiki/Adverse_possession ). If USG is not the legitimate title holder of middle-North America, who is?
Why should adverse possession apply? One use for it is to establish who the de facto owner is, but that is of course unnecessary here. Another is to provide more security for property owners -- does the most powerful corporation in the history of the world need that from us? Third, since adverse possession is based on the doctrine of laches, if it applies here doesn't England have a stronger claim to ownership?
Also, if we are applying common law principles, I contend that USG has in the past engaged in massive fraud by pretending it is not the actual owner, and continues to do so today. When we also consider the violent means it has used to acquire and maintain ownership, we have force and fraud -- enough to disqualify USG as a legitimate title holder.
> If USG is not the legitimate title holder of middle-North America, who is?
I admit, the answer is unclear, but it does seem clear that USG is not it.
Correct me if I'm wrong, but it seems your reasoning is at least slightly different from MM's, then -- I don't think MM has much of an interest in this question or much of an answer to it, since he has criticized the "Rebellion" but now accepts USG's ownership.
Also, if we are applying common law principles, I contend that USG has in the past engaged in massive fraud by pretending it is not the actual owner, and continues to do so today. When we also consider the violent means it has used to acquire and maintain ownership, we have force and fraud -- enough to disqualify USG as a legitimate title holder.
> If USG is not the legitimate title holder of middle-North America, who is?
I admit, the answer is unclear, but it does seem clear that USG is not it.
Correct me if I'm wrong, but it seems your reasoning is at least slightly different from MM's, then -- I don't think MM has much of an interest in this question or much of an answer to it, since he has criticized the "Rebellion" but now accepts USG's ownership.
Adverse Possession does not care how the property was acquired. All it cares is that the owner has managed to maintain uncontested possession of it. The states originally siezed the territory from the Brits. The Feds then seized it from the states. Neither usurpation is still contested to this day. No state government maintains that the New Deal is illegitimate.
Adverse Possession is not about making moral claims. It is a way to prevent violence by settling who owns what. Groups would try and manufacture claims and rally groups to regain possession. You see this happen in the Balkans and Middle East with claims going back hundreds or thousands of years.
Of course, in some ways the question of legitimacy of state ownership is silly. Law between sovereigns or between a sovereign and its residents is always jungle law. The strongest wins. By definition, there is no third party to enforce the law.
Adverse Possession is not about making moral claims. It is a way to prevent violence by settling who owns what. Groups would try and manufacture claims and rally groups to regain possession. You see this happen in the Balkans and Middle East with claims going back hundreds or thousands of years.
Of course, in some ways the question of legitimacy of state ownership is silly. Law between sovereigns or between a sovereign and its residents is always jungle law. The strongest wins. By definition, there is no third party to enforce the law.
I don't think I disputed anything in your first two paragraphs, but let me know if you think I did. As you say, the strongest wins, so why rely on something like adverse possession? If you're saying it ought to apply here solely for the purpose of preventing violence, then, as I said, it doesn't seem necessary. USG's military and propaganda arms are powerful enough today as to make this irrelevant.
Of course, if most of the residents are very dissatisfied with their sovereign and are willing to take extreme measures, they have a chance of winning regardless of immediately available firepower. This is where the question of legitimacy matters, because a sovereign will have at least some trouble if its residents do not accept its legitimacy, even if it wins in the end.
Of course, if most of the residents are very dissatisfied with their sovereign and are willing to take extreme measures, they have a chance of winning regardless of immediately available firepower. This is where the question of legitimacy matters, because a sovereign will have at least some trouble if its residents do not accept its legitimacy, even if it wins in the end.
I think the point of the diagram is to show where people decide to spend their money, that is, the money they actually get. What they get is after-tax. They do not get to spend the portion that is taxed away anyway so it's not on the list because it's not their choice.
By the way, don't you guys in the U.S. get a salary report for each paycheck you receive? Such a report in Finland would state your salary before taxes, after other deductions such as insurance, pension, union fees etc. each listed per row, and finally your salary after taxes. I think that producing such a report is required for all companies so at least in this part of the globe you wouldn't miss how much you pay taxes.
I must say that personally I really don't even know my salary before taxes unless rounded to the nearest 500 euros or so. All I'm interested in how much I get transferred to my bank account each month.
By the way, don't you guys in the U.S. get a salary report for each paycheck you receive? Such a report in Finland would state your salary before taxes, after other deductions such as insurance, pension, union fees etc. each listed per row, and finally your salary after taxes. I think that producing such a report is required for all companies so at least in this part of the globe you wouldn't miss how much you pay taxes.
I must say that personally I really don't even know my salary before taxes unless rounded to the nearest 500 euros or so. All I'm interested in how much I get transferred to my bank account each month.
> By the way, don't you guys in the U.S. get a salary report for each paycheck you receive?
Yes we do. Most people ignore it (just like you). They figure take-home is their income and that any refund that they get after filing is "free money" to them and not a zero-interest rate loan to govt.
Yes we do. Most people ignore it (just like you). They figure take-home is their income and that any refund that they get after filing is "free money" to them and not a zero-interest rate loan to govt.
I couldn't agree more. Amazing how furious the population would get if they had to write those bigass checks every quarter.
It's too bad. I'd love to see an organized effort by business owners to say "screw withholding" for employees (despite it's illegality) and watch the government scramble. You can't imprison everyone.
It's too bad. I'd love to see an organized effort by business owners to say "screw withholding" for employees (despite it's illegality) and watch the government scramble. You can't imprison everyone.