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How Americans Spend Their Money: 75 Years of the Consumer Expenditure Survey

by J.D. Roth on 04 May 2016 12 Comments

I frequently claim that the average American family spends roughly $53,000 per year. A few folks have dropped a line to ask how I came up with that number. Simple. Whenever I cite figures about American earning, saving, and spending, I get them from the U.S. government. In this case, I used the Consumer Expenditure Survey (or CEX) from the U.S. Bureau of Labor Statistics.

Here’s how the BLS website describes the Consumer Expenditure Survey:

The Consumer Expenditure Survey program consists of two surveys, the Quarterly Interview Survey and the Diary Survey, that provide information on the buying habits of American consumers, including data on their expenditures, income, and consumer unit (families and single consumers) characteristics. The survey data are collected for the Bureau of Labor Statistics by the U.S. Census Bureau. The CEX is important because it is the only Federal survey to provide information on the complete range of consumers’ expenditures and incomes, as well as the characteristics of those consumers.

The Consumer Expenditure Survey is the only reliable source I’ve found about actual spending habits. Most similar projects have much smaller sample sizes and/or provide theoretical numbers. The CEX is a great way to develop a descriptive budget (one that deals with real behavior) instead of a prescriptive budget (one that pushes an agenda).

Naturally, the CEX has its drawbacks. As always, averages (and medians) only provide a limited view of a dataset. Plus, what might be true for an entire population (a country, in this case), probably isn’t true for a small subsection (your state or city, for instance). Still, for looking at the Big Picture, nothing I’ve found beats the Consumer Expenditure Survey.

Let’s take a closer look at the CEX — and what we can learn from it.

Decades of Data

If you visit the BLS Consumer Expenditure Survey page, you’ll likely be overwhelmed by the amount of information available. When I first found the site, I had to sort through the various reports until I found the one most useful for my work: the “age of reference person” table, which splits spending info based on the age of the person surveyed. (This is the base report I use when I collect stats.)

I also like the “Announcements” section at the top of the page, which provides links to recent reports and analyses of the data. Here for instance are several recent articles:

  • A closer look at the spending habits of older Americans
  • Expenditures on cellular phone services have increased significantly since 2007
  • Using gasoline data to explain price inelasticity

To a money nerd like me, this stuff is golden!

Like most federal government agencies, the BLS has an excellent website. They’ve collected all past CEX data onto a single page! (Well, almost all past CEX data. Recent years aren’t yet listed.) Turns out the government performed this survey once during the early 1960s, once during the early 1970s, then made it an annual things starting in 1984. That means there are now roughly fifty years of stats for money geeks to sort through. (Plus, the site provides access to a “forgotten” expenditure survey from the early 1940s!)

A couple of weeks ago, I went through these surveys and grabbed data to make a spreadsheet that tracks how spending has evolved over time. Rather than bury myself (and you) in a flood of information, I decided to look only at ten-year intervals. I figure by skipping a decade we get a more meaningful look at shifting habits. That means I used expenditure tables from 1961, 1973, 1984, 1994, 2004, and 2014 — the most recent year for which data is available. (All of those links lead to PDFs.) For fun, I also included data from the “forgotten” 1941 survey (which is much less comprehensive than later reports).

Note: For our purposes, I cut a lot of crap. These are complex statistical reports, and they’re filled with numbers we don’t care about (do we need to know the standard deviation for everything?) and jargon that just confuses, such as “consumer unit” (which we’ll call “household”) and “reference person” (which we’ll call “head of household”). Here’s a complete glossary of CEX terminology. Also, I’m not going to break down every little subcategory. The “Food at home” subcategory has 25 sub-sub-categories beneath it, including “bakery products”, “fish and seafood”, and “processed fruits”. I’m just going to stick to the primary categories and subcategories.

The following tables provide a run-down of the data I collected. After I show you the numbers, I’ll discuss a few things that stood out to me about how American spending has changed with time.

Table 1: Cost of living adjustment and sample size
CEX - Assumptions

Tables 2 and 3: Attributes of the average American household
Note that estimated market value of home is inflation-adjusted
CEX - Averages

CEX - Adjusted Percent

Table 4: Income, taxes, and spending (actual)
CEX - Raw Overall

Table 5: Income, taxes, and spending (inflation-adjusted)
CEX - Adjusted Overall

Table 6: Spending by category (actual)
CEX - Raw Categories

Table 7: Spending by category (inflation-adjusted)
CEX - Adjusted Categories

Take some time to browse this info. Let it soak in. Look for patterns. Look for changes. What surprises you about how Americans spend their money? Where do we spend less than you thought we would? Where do we spend more?

Before I point out some of the things I find interesting, you should know a couple of things:

  • First, the tables from the 1961 Consumer Expenditure Survey contain wildly contradictory information. Different tables supply different numbers. Sometimes when you add subcategories, the total is greater than the parent category. Where there’s contradictory info, I used table B-17 as my guide (since it most closely resembles later CEX reports). Another problem? Sometimes the scanned pages are difficult to decipher. Is that a three or a five? A six or an eight? I think the numbers here are accurate, but there could be errors.
  • I’m a little puzzled by the tax numbers. Throughout the history of the CEX, taxes have remained relatively constant. Then, for whatever reason, the numbers jumped in 2013 and 2014. I’m not sure why this is. There was a new top marginal tax rate introduced in 2013, but that seems unlikely to have caused a jump like this. (Impossible, in fact.) Maybe there was a change in methodology?

With those notes out of the way, let’s dive into the numbers! Let’s look at how Americans spend their money — both now and in the past.

A note on inflation: Using 2014 as a base, I calculated a cost-of-living adjustment for each year in order to factor out inflation. (I used the U.S. government CPI inflation calculator to get these numbers.) Looking at Table 1, you can see that prices in 1984 were roughly 44% of what they were in 2014. After computing this number, I converted it to a multiplier to get inflation-adjusted expenses. If 1984 prices were 44% of 2014 prices, that means we have to multiply numbers from the former by 2.28 to get equivalents for today.

How Americans Spend Their Money

We could spend hours sifting through this information to find patterns and trends. Instead, let’s just hit the highlights.

First up, note how the size of the average household has dropped from 3.2 people in 1961 to 2.5 people in 2014. Almost the entirety of that drop comes from the fact that we’re having fewer children. In 1961, the average household contained 1.2 children; today it contains 0.6 children.

Meanwhile, automobile ownership has boomed. Since 1973, we’ve gone from owning 1.3 cars per household to owning 1.9, an increase of 46% during the past forty years. Other notable demographic changes:

  • Today, there are more full-time earners per household than there were in 1961 (1.3 vs. 0.8).
  • We, as a society, are much more educated than we were forty years ago. In 1973, an amazing 21.2% of Americans didn’t have a high school diploma. Today, that number is down to 3%. Meanwhile, far more people have attended college.
  • Home values have far outpaced inflation. The average home was worth $76,156 in 1973; today, it’s worth $160,814. (For more on this, see last week’s article on the history of the U.S. housing market.)

Moving on to Tables 4 and 5 (Income, taxes, and spending), you can see that even when adjusting for inflation, household income doubled between 1941 and 1973. In the past forty years, household income has only increased another 10%. My guess is that this change can be almost entirely attributed to women entering the workforce. Dual-income households used to be unusual; today, they’re common.

As much as income has increased, spending has grown more quickly. In 1973, Americans spent 85.0% of their after-tax income. In 2014, they spent 91.7% of their after-tax income. (Admittedly, spending as a percentage of income seems to bounce around.)

To make it easier to visualize some of these changes, I created another table to calculate some important ratios and percentages.

Table 8: Derived numbers
CEX - Derived

In 1941, the average American family spent 31% of its budget on food. In 2014, the average family spent 12.6% of its budget on food. That’s a huge decline! That number has dropped every decade on record — despite the fact that we’re spending more on “food away from home” (which I take to mean restaurant meals). From 1973 to 2014, restaurant spending increased 24% while spending on food at home declined 36%. Overall, food spending declined 21% in in the past forty years.

But not all of our spending has dropped. As you might have guessed, we’re spending more and more on housing as time goes by. As I often note, exactly one-third of the average American budget goes to shelter. The numbers have increased every decade. Do I have to tell you how alarming this is? (I hate how many people are house-poor!)

As bad as the housing numbers are, the transportation numbers are worse! Consider this:

  • In 1941, the average household spent exactly as much on clothing as they did on housing. (That’s a coincidence, not a typo.)
  • In 1973, we spent about three times as much on transportation as we did on clothing.
  • Today, we spend five times as much on transportation as we do on clothing.

Our clothes are cheaper, sure, but we’ve also grown obsessed with cars. After adjusting for inflation, Americans now spend three times as much on transportation as they did in 1941! (Fortunately, spending there seems to be drifting downward.)

Meanwhile, health insurance costs are out of control. They’ve almost tripled in the past forty years — after adjusting for inflation.

I think it’s interesting that spending on most miscellaneous categories has declined with time. We’re spending 21% less on alcohol than we did in the 1970s. We spend 28% less on recreation and entertainment, 27% less on personal care, 34% less on gifts, and 60% less on books. (No surprise there. Americans don’t read much anymore.)

So, we’re spending more on the big-ticket items than we used to, but spending less on the little stuff. Honestly, this is dumb. It’s the opposite of how it should be. When you spend too much on the big stuff, there’s no room left for the little stuff — and that makes most folks feel squeezed for money.

Looking at these tables, what numbers stand out to you? How does your spending compare to the average American family? What worries you about your spending — and the spending of the country as a whole? (And are there other similar surveys and reports I should take into account when writing about consumer spending?)

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There are 12 reader responses to "How Americans Spend Their Money: 75 Years of the Consumer Expenditure Survey".
  1. PhysicianOnFIRE says

    04 May 2016 at 13:41

    Great post, Boss! Thanks for breaking it all down for us. I heart numbers.

    The health insurance and health care numbers certainly stand out. I hope we start to see those numbers stabilize.

    The increase in the big-ticket spending and workload on each household go hand in hand. This is why Keynes’ prediction of the 15-hour workweek won’t come to fruition. Through marketing or greed or whatever it is, we want so much more than we did back when he made the prediction in 1930. The improvements in efficiencies are happening, but he failed to predict our increased appetite for More.

    Best,
    PoF

    Reply
  2. Dividendsdownunder says

    04 May 2016 at 15:31

    I think all of these are great to analyse and look at J D, and once you take out inflation, there are still some scary increases in there, however I think most of it almost makes sense, or needs a bit more analysis.

    Housing – This has increased a lot, and in some cities is very unaffordable. However, I would be interested to know if they amount of square feet that people are getting for their money is increasing, about the same, or decreasing. Because if it’s changed, we’re not quite comparing apples with apples.

    Health (insurance) – Health expenditure continues to grow out of control, it is worryingly expensive. However, I would point to the increasing life expectancy, meaning that this money is not being wasted, people ARE living longer. So it’s working. Would you spend a decent amount of your budget to live an extra 5+ years? Most people would.

    Education – This has also grown a huge amount. But again, this isn’t discretionary spending, it’s people trying to earn more in their career. Looking at your tables, the only stat we have is income, which has increased dramatically. So although today’s education IS VERY EXPENSIVE, over the course of these surveys the education has led to much higher earnings on average. So again, most people would say that’s worth it.

    Transportation is high, but I imagine more people are commuting further to their jobs than they were before.

    Very interesting, thanks J D.

    Tristan

    Reply
  3. plain_jane says

    04 May 2016 at 17:29

    Clothing stood out to me. We’re spending less, likely on more pieces, and at what human and environmental cost?

    Reply
  4. Jack Oatmon says

    05 May 2016 at 06:12

    I’m amazed by how much the average annual expenditures are right now. Especially because it makes up such a high percentage of the average income. I wonder whether consumer debt is included here as well. The gap between income and expenditures is almost $5000, however I bet most people aren’t saving $5000 per year. My annual household income is almost three times the average amount quoted here, yet we spend around the average . . . but with that said I feel like we spend way too much! To know that people with average incomes are spending just as much as us is really eye opening.
    I’m also not surprised by the transportation numbers, especially when it comes to purchases. I live in a relatively poor city yet I see brand new cars on the road everyday and you know there is a good chance that the purchaser’s income is average at best. I know people with car payments that are almost as much as their mortgages. I really think that people would make so much more financial progress if they just understood how to manage their money strictly when it comes to automobiles.

    Reply
  5. TheSouthernStache says

    05 May 2016 at 11:02

    Another informative post.

    Is there anywhere on here that states the change in the number of households? If due to divorce, there is an uptick in number of households, that could help explain some of the numbers. Reduced number of children per household, for example.

    Reply
  6. Mysticaltyger says

    05 May 2016 at 11:48

    I will get on my soapbox here and preach that we probably need to spend more on quality food and generally cut back on meat & poultry and increase intake of organic fruits and vegetables. If we would do that, health care costs would plummet. Incidence of diabetes, heart disease, some cancers, and even Alzheimer’s would be greatly reduced.

    Reply
  7. chacha1 says

    05 May 2016 at 15:18

    I’m going to respectfully disagree with mysticaltyger: improving the nutritional quality of the American diet will not cut health care costs, because the vast majority of individual healthcare spending is not on actual healthcare services purchased, it’s on insurance premiums paid.

    My family insurance premium – including the share paid by my employer – is $1300/mo. I am a healthy 50 yr old woman and my husband is a healthy 56 yr old man. Our purchases of actual healthcare services averaged less than $600 a year – retail value – for the ten years 2003-2013, a period during which I paid over $70,000 in health insurance premiums. This is with high-deductible health plans.

    Our food budget is about $400/mo and I do buy organic. Insurers do not give a damn if you buy organic. What you eat does not enter into their calculations at all. They are calculating their premiums on statistical models that say “a person of this gender at this age who does not smoke is X likely to cost us X dollars in claims, therefore she will pay X premium.”

    Overall, I think the Great American Pinch (i.e. the perception that the economy stinks) is well explicated by two simple inflation-adjusted numbers. Income: up 12% over the 40-yr period. Expenditures: up 21%. People have simply not matched their spending to their income.

    Reply
  8. Sandi K. says

    06 May 2016 at 09:52

    One category that is missing from my quick scan is childcare. For some households, that is an enormous expense.

    Reply
    • Sam Smith says

      18 May 2016 at 07:39

      I wonder if that is captured under education? But, yeah that is a huge number for us right now.

      Reply
  9. Steve Henderson says

    09 May 2016 at 10:39

    This is a very interesting and good look at people’s spending. Thanks for writing it. Yes, the Consumer Expenditure Survey changed the income tax calculation process with the 2013 tables. Instead of trying to get people to guess what their federal and state income taxes would be, the survey started using the National Bureau of Economic Research TaxSim estimator. Here’s a link to the details in FAX #23 on the BLS Consumer Expenditure Survey website: http://www.bls.gov/cex/csxfaqs.htm#q23

    The BLS online tables do show the average mean family size: http://www.bls.gov/cex/22015/midyear/age.pdf
    It is the row labeled “Average number in consumer unit”

    Reply
  10. Sam Smith says

    18 May 2016 at 07:34

    Interesting data. Surprised that number of earners has been flat for more than 20 years.

    Most of the spending seems relatively flat too. The biggies are health insurance, education and retirement. Sadly you really can’t control health insurance costs and if you want to retire these days you have to put a lot of money away instead of your employer doing it for you. You can control, in part, education costs but even doing the state university route is still way more expensive, adjusted for inflation, than it used to be.

    The other two, housing and transportation are interesting to look at. Folks have some control although I’d argue it really depends on where you live too.

    Reply
  11. LennStar says

    07 September 2016 at 04:43

    I think the comparison of X to cloth is not a good one, because clothes have become a lot cheaper. Its not as in the olden days where the average people had one normal cloth and then one sunday cloth and that was it.
    If course for every 5$ T-Shirt you can still buy the 100$ and more variant.
    Similar with food.

    Reply

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J.D. Roth

My name is J.D. Roth. Ten years ago, my financial life was a disaster. Instead of waiting for things to get better, I decided to become boss of my own life. The results were remarkable. I'm here to help you master your money — and your life. Read more.

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