Tuesday, September 17, 2013

How Much do the Poor Spend on What? How about the Wealthy?

A recent Yahoo! Finance article has some nice graphs based on the newest BLS Consumption spending data by quintiles. Being a sociologist who studies poverty, the graphs looked sketchy to me. For example, Thompson's representation that the bottom 20% of earners only spend 15% of their income on food, while the top 20% of earners spend over 10% on food?!?! If the top quintile mean income is $160k, that's about $1,500/month--on "average"!

However, a closer examination of the numbers reveal a different picture. First, Thompson isn't graphing a percent of income, but a percent of expenditures. The top quintile spend less than 60% of their income, presumably the rest going into savings. So the 12% Thompson shows for food expenditure, is only of total expenditures, coming to about $940/month--still a lot, but a more reasonable, which is likely why he graphed it that way. However, one of the things that a graph comparing the bottom and top quintile's expenditures, is that the bottom quintile is saving nothing. Neither is the 2nd bottom quintile. So for the bottom 40% of earners, nothing is going into savings--there is nothing left after buying the essentials.

Another feature of Thompson's graph that I dispute (which is a reasonably arguable point--my disagreement is that his graph seems to "hide" a lot), is that he is graphing "post-aid" expenditure. What this means, is that the 16% that the poor are spending on food, isn't really just 16% of their income. Actually it's a whopping 34.4% of their income!!! However, once you factor in food stamps, the average income of the bottom 20% gets effectively doubled, giving Thompson his final graphed data. What this hides is the fact that the bottom 20% of workers have to have charity and government subsidies literally double their income in order for them to survive--the mean income for this group is $10,171, or just below the poverty line. This is slightly less than a worker makes full time at minimum wage. Keep in mind also that this is "household/family" data, not individuals. So this bottom quintile income of $10k may be feeding several children, an elderly parent, or a disabled spouse.

Here I have corrected what I see as oversight in this Yahoo! Finance graphing of data. This is post-tax, pre-aid data. Therefore, the numbers for the bottom two quintiles (0-20% and 20-40% will add up to more than 100% of their income). Below the chart are the percentages used for the graphing. The original data is available from the BLS link above. If the graph is too small for you to see, it should enlarge if you click on it.

Table 1: Percent of their income each quintile spends on the category of goods/services

Post-Tax, Pre-Aid IncomeLowest Quintile
Second Lowest Quintile
Highest Quintile
Apparel and services7.5%4.1%2.0%
Utilities, fuels, and public services21.4%10.7%3.2%
Health care16.5%10.0%3.5%
PostTax Income (Mean)$10,171$27,743$158,024

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