How do Americans Spend Their Money?

A recent article in the online version of The Atlantic denoted the strange fascination and obsession of Americans for their houses and their cars. As a foreigner from a country where you do not show you have money or at least you do not speak of it, it is something that is difficult to grasp. I wholeheartedly agree with the statement of the first sentence of this article.

1 out of $2 spent by Americans is on real estate and transportation. It does not have to be that way.

Those statistics are originated by the Bureau of Labor Statistics.

Recent data and studies show that the income disparities between the American families do not affect much the ratio that you see above. Either your household is led by someone with a high school diploma, a bachelor (salary x2), or a master/doctorate (salary x 3 to 5), the spending ratios do not change much. According to The Atlantic’s article and the Bureau of Labor Statistics:

• Housing: About a third of all family budgets: families with a bachelor’s spend 32 percent of their income on housing; for families without a degree, the figure is 33.7 percent
• Transportation: About one-sixth of all family budgets: 17.1 percent for the college-grad family; 18.9 percent for non-grad families
• Food: About one-eighth of all family budgets: 13.8 percent for college-grad families; 12.6 percent for non-grad families

Families led by high school graduates average about $35,000 worth of spending per year. High school plus some college is about $43k, and college degree is around $63k.

You can read more data mentioned in the article. The scary part of this pie is how little there is left for “Others”. Let me remind you that the average household income in the US is between $47,000 and $53,000 depending in which state you live. So the average spending of $51,222 means that it includes not only spending as we think of it but also savings! Going back to the “Others” category. It represents only 11% of the household earning and in “others” should be included:

• Regular savings – kids’ education, house maintenance.
• Rainy day savings – when you’ll be between two jobs or you have a large expense -medical, accident, house repair.
• Retirement

Just the retirement part should represent at least 10% of your gross income, I advise 15% to be comfortable. As a quick reminder: Retirement is a Three Legged Chair composed of social security, pension/401(k), savings. If you spend 50% of your income on a house and transportation, how do you expect to afford to retire? Maybe it is time to look at smaller houses and more reasonably priced cars.

Thank you

Oliver