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Consumer expenditure survey illustrating the income divide
- gonmf 9y agoI feel the labels are switched in this picture http://erikrood.com/Posts/renter_home_income.png http://erikrood.com/Posts/renter_home_income.png
- qwerty2020 9y agoah, yep, good eye! will fix this evening when I get back to computer
- noobermin 9y agoAlso, it looks like you say, "The bottom 60% of earners spend more than they make in a given year." while the first figure seems to show the bottom 40% do so.
- qwerty2020 9y agoUpdated both, thanks.
- formula1 9y agoSo that's the spending requirement for a reasonably comfortable life. Good to know
- wernercd 9y agogetting your nails did and lift kit on your truck isn't needed for a "reasonably comfortable life". My general point is people waste a LOT of money on things they don't "need" that don't really add to "comfort". I grew up dirt poor and we stayed within our means. I was comfortable with 3 squares and a roof over my head.
- hfourm 9y agoYea I think this is borderline offensive. But your point is true, one of the bigger problems is people try to live way outside their means. This is also a cultural problem even outside of the lower class, with middle class individuals living paycheck to paycheck -- or in a lot of bad debt.
- CameronBanga 9y agoAs a general FYI, it's possible to make the point you just did without using a derogatory and arguably racist sentence as an example.
- wernercd 9y agoShould I mention lift kits and skoal to balance it out? People waste money on stuff that isn't relevant to comfort... If the truth is offensive, the so be it. I've been surrounded by people of all walks of life wasting money... I chose one example and I'm not worried if someone gets offended. We spend to much time dancing around PC goals of never offending anyone anytime about anything... But I digress...
- aaronbrethorst 9y ago> PC goals Not using racist stereotypes is a "PC goal?"
- wernercd 9y agoBeing offended by every little perceived slight is a PC goal.
- ch4s3 9y ago>getting your nails did The problem with that phrase is that it's a lazy shortcut that doesn't offer any insight, is racialized in a suspect manor, and ignores interesting reasons why people might in your opinion "waste" their money. Economically if someone is purchasing a nail job, which in many areas is dirt cheap, they may be receiving utility that you are not taking into consideration. A nice nail job may confer social status/capital which can ben spent in place of cash. It may be useful in attracting a more fit mate who can split costs of housing. It may be useful in maintaining your appearance for a customer service job. Surely, to your point some people do "waste" their money, but it's not necessarily cut and dry what that means. Short sighted expenditures may confer short term value and alleviate short term problems where the capital requirement for a lasting solution may be too high for an individual to afford on minimum wage. This is part of the reason that poverty is a trap.
- sol_remmy 9y agoOr it proves the law that some people will spend every cent they receive, whether through income or welfare
- ch4s3 9y agoAs a grad student, I spent every dollar I earned and took on loans. I'd hardly call my lifestyle at the time irresponsible or extravagant.
- ceejayoz 9y agoI'd probably have to spend every penny I got if I was making minimum wage, too.
- pitaj 9y agoDepends where you live.
- ch4s3 9y agoWhere in the US can you work 40hr/wk on the minimum wage and not spend basically all of your income staying afloat? And in those places if they exist, what does the employment situation actually look like? Can you find a job? Can you piece together 40 hours?
- aaronbrethorst 9y agoWhat I infer from your comment is you are saying that poor people are poor because they lack the discipline to stop being poor. Is that an accurate representation? If not, I'd love to know how I misinterpreted your words.
- formula1 9y agoI don't think an underclass living on ramen noodles is very humane
- sokoloff 9y ago
- noobermin 9y agoThe title should probably be the title of the article here.
- sctb 9y agoYes, thanks. We've updated the title from “The bottom 20% of earners outspend income by 2x each year”.
- ubi 9y agoPretty shocked that ~50% of the bottom 20% has a college degree. Would have expected much lower
- qwerty2020 9y agoThis surprised me as well, but given the negative ROI of many college degrees, I suppose it's not all that surprising. [1] Also, assuming that they are counting 2-year colleges in this calculation as well, though I could not find an answer to that. [1] http://erikrood.com/Posts/college_roi_.html http://erikrood.com/Posts/college_roi_.html
- Kalium 9y agoMay be sensitive to definition. Is an associates counted, for example. A couple other possible confounds come to mind, such as highly-educated stay-at-home parents.
- pmiller2 9y agoThe bottom 20% includes a lot of under 25's. That would account for a higher proportion of college grads. It may also account for a good portion of the overspending among this group, since it would capture people in college living on student loans. By that measure, I was spending over 200% of my income every year between tuition and basic living expenses while in grad school.
- DougWebb 9y agoThat's probably a combination of: 1) Going into debt for college makes you poor, and 2) A lot of college degrees are just not worth the cost, if you're expecting them to lead to a good income.
- thephyber 9y ago> Going into debt for college makes you poor But these data don't have anything to do with "being poor" -- it's entirely about income, which is still positively correlated with more education.
- problems 9y ago
- Mz 9y agoThe poorest groups primarily rent. Breakdowns are "Rent, Home without mortgage, Home with mortgage." I wonder what percentage of the bottom 20 percent are homeless. Because that data is not even being included. It assumes the most destitute all have homes of some sort. This is not true.
- microcolonel 9y agoGiven that the homeless overall make up about 0.5% of the population, I doubt it would have much effect on the survey either way.
- Mz 9y agoI bet that the 0.5% of the population that are homeless are found almost entirely in the bottom 20%. This would mean they are about 2.5% of that group. And it may be higher, depending on the definition of homeless being used. Most people think of street people as The Homeless, but social workers, et al, also consider many other people to be homeless. They are often counted among the hidden homeless. These include people who are couch surfing, living with relatives temporarily to avoid being out in the street, people in temporary shelters and people in substandard housing considered unfit for human habitation.
- microcolonel 9y ago> I bet that the 0.5% of the population that are homeless are found almost entirely in the bottom 20%. This would mean they are about 2.5% of that group. Seems a bit obvious. > And it may be higher, depending on the definition of homeless being used. Most people think of street people as The Homeless, but social workers, et al, also consider many other people to be homeless. They are often counted among the hidden homeless. These include people who are couch surfing, living with relatives temporarily to avoid being out in the street, people in temporary shelters and people in substandard housing considered unfit for human habitation. > couch surfing Couch surfing is (usually) not homelessness, I slept on people's couches when I was trying to get out of my mom's house in the most expensive city in Canada. I lived just fine, though. Couch surfing is not always great, but it isn't homelessness. > living with relatives temporarily to avoid being out in the street Unless your relatives are abusive, I don't think living with relatives counts as homeless either. If I were comfortable around my parents, I don't see why I would've moved out yet, it'd be a waste of money. > substandard housing considered unfit for human habitation Substandard housing is tenuous, I've lived in places with a horribly leaky roof, flaky electricity, and questionable structural integrity... but I don't even think that quite counts as homeless. I guess it's closer. "Unfit" is ill-defined, many houses that people would gladly have lived in in the 40s would be considered "unfit" today, but I doubt these "unfit" homes are presenting an overwhelming mortal danger like being homeless. > temporary shelters Temporary shelters I don't know about, I don't think they count people living in camping tents (or other non-permanent tents) as housed.
- zetazzed 9y agoOr, the lowest 20% of earners according to CES under-report their income, which may include tips and cash payments, so CES thinks they are overspending.
- TrickyRick 9y agoThis is a fair point, but could 50% of their income really be tips and cash payments? It seems high to me but I have no insight into how those things work in the US.
- microcolonel 9y agoFor many, it could be close to all of their income.
- dibujante 9y agoEasily more than 50% for some tipped workers.
- ceautery 9y agoWhen I delivered pizza, my tips were more than my paycheck.
- TrickyRick 9y agoWow, I never realized it was that bad
- pmiller2 9y agoIs this based on before or after tax income? I would assume after, but it doesn't really say.
- qwerty2020 9y agoAfter tax income. If you dig through the data [1] you'll find that. [1] https://www.bls.gov/cex/tables.htm#annual https://www.bls.gov/cex/tables.htm#annual
- jscud 9y agoDoes the population considered for these graphs include people who are retired? If you are living primarily off of savings, I imagine you would be included in the bottom 20% bracket.
- pianom4n 9y agoAnd if you consider retirees that makes perfect sense. It's hard to draw any meaningful conclusion from these graphs.
- round_guy 9y agoI'm surprised to see over 50% of top 40% owns their home outright. Are people paying off their home early or is this baby boomers who have lived in the same home for 30 years? I would like to see the age breakdown of each segment. As housing costs increase and rent payments continue to flow to the top, inequality will continue to accelerate. Housing policy that promotes affordability needs more attention and effort behind it.
- Kalium 9y agoI think you nailed it. People in their 50s and 60s are more likely to both have a higher income and own a home without a mortgage.
- thephyber 9y agoIf you fought in WW2 and came back, there was a massive boom of affordable housing across the nation. It grew in the 1950s and 1960s, when wages were growing. Between those who bought 30+ years ago (and didn't refinance every 5 years) + those families who passed their real estate down in their inheritance, I can easily see that being a large percentage of the population. The fact that they are in the bottom 20% of income seems less relevant. If you are in/near retirement or simply underemployed, owning your home means you have to work less to cover your costs.
- KerrickStaley 9y ago> The bottom 40% of earners spend more than they make in a given year. This stat presumably includes people who are retired, people who are dependents (e.g. on a parent), and people who are on welfare. I don't think you can conclude much without breaking that down further.
- qwerty2020 9y agoDoes not include dependents, groups into families. May include retirees though I could not verify this either. (you're welcome to dig through the data linked in the article yourself, let me know if you find anything). I think the general point would still stand even excluding retirees, but agree that would be a more telling cut of data.
- deleted 9y ago[deleted]
- Johnny555 9y agoHow is it possible for so many people to overspend their income? Credit cards will only tide you over for so long, and once you carry a large balance, it's hard to get additional unsecured credit.
- garethsprice 9y agoDespite claims to the contrary there's still a lot of economic mobility in the US - just as most homeless people are homeless for a only short period of time, many people will dip in and out of poverty throughout their lifetimes and not that many are "chronically poor". During the lean times, the temporarily poor may be cashing out savings and 401k (and taking huge penalties), burning through home equity lines of credit, borrowing money from relatives, working under the table, etc. eg. Have a 60k a year job, 40k a year expenses and over a couple of years save up 20k in savings. Get laid off and your income goes down to 20k that year but you're only able to cut your expenses to 30k. You drain half your savings, spending 150% of your income that year. Next year, you're able to land a job paying 65k and you can start building up your savings again.
- patio11 9y agoIf you're curious why: Income before taxes is not "income before taxes net of transfer payments." (It can't be, because one of the most salient transfer payments in the US, the EITC, is administered through the tax system.) One might assume that poverty is sticky and therefore the bottom 20% of earners is relatively constant, but while poverty might be sticky "low income in a year" is not sticky on a year-to-year or decade-to-decade basis. Many people in the lowest 20% for income were middle class N years ago and still are. They're spending out of their savings faster than their savings throw off interest/dividends. That's OK; their retirement math mandates it. ("Wait, how can you afford a mortgage on $10k a year of inc... oooooh.") Some folks also deal with substantial income volatility on a year-to-year basis. Relevantly to many HNers, there are a variety of structures in which business owners hit the bottom 20% in formative/bad years.
- thephyber 9y agoQuestions of clarity not addressed in this post (needs digging in the underlying data): * Is this individuals, individuals who work, or households? * Is this data self-reported or somehow collected and correlated by experts? * Does any of this data include people who don't file taxes? * What is the definition of the "college degree" category? Does this include the "college" category or degrees from non-accredited colleges/trade schools? * Does "income" represent all benefits or just paycheck? I'm under the impression that civil servants make little in paycheck, but their benefits are back-loaded with pensions and health benefits that aren't visible if just analyzing "income". These all have a large impact on the data and could easily sway the impression that the reader gets.
- grasshopperpurp 9y agoI'd be curious to see more specific breakdowns. There's a big difference between someone around the 80th, 85th, and 90th percentile vs someone in the top 1% or top 0.01%. I'd guess that for the very rich, they spend less than 20% of their income. If someone has better info, I welcome corrections. The most significant implication seems to be that as more money flows to the top, it is not being recirculated at the rate it would if it were still in the hands of middle or low-income workers. This is not a moral judgement on the especially rich (in this case). They're making more money than they can reasonably spend, and even if they could spend more, it wouldn't be in their best interest. As I understand it, though, this is not a good thing for the economy.
- bcheung 9y agoSo of the top 50% of income earners, half of them have their houses paid off completely? That doesn't seem right.
- ac29 9y agoMaybe these graphs will help: Median Family Income: https://fred.stlouisfed.org/series/MSPNHSUS https://fred.stlouisfed.org/series/MSPNHSUS Median Price of New Homes: https://fred.stlouisfed.org/series/MEFAINUSA672N https://fred.stlouisfed.org/series/MEFAINUSA672N Comparing 1965 to 2015, in 1965 a new home cost less than half of what a family earned in a year, in 2015 it cost 4 times annual earnings. Times have changed. The crossover point, where median house prices exceeded median family annual incomes didn't occur until the 1980s -- meaning people who bought houses during that period or prior likely had little trouble servicing multi-decade mortgages, or even paying them off early.
- copperred 9y agoWhere is the divide illustrated? I see a spectrum across the population with no clear dividing lines.
- jstewartmobile 9y agoChildhood: Imagining animals in the clouds. Adulthood: Finding axes to grind in charts.
- anovikov 9y agoLet me ask a really stupid question: isn't AGE the most defining factor here rather than race etc.? Especially percentage of those owning a home without mortgage - if anything, fractions of a percent may buy a home they'd live in outright, so it must be just because they already paid out that home, and they are old. Same for the large percentage of women in lower earning groups and larger overspending there: that's natural, young women make less money, but they also get a lot of money from boyfriends, frequently those in the top income group, and spend it, so why is that a problem at all?