Thursday, September 09, 2010

Changes in Household Spending

This graph appeared in yesterday's New York Times and I found it fascinating:


Look how much the share spent on food and clothing increased during World War II, and how much lower they are now than at any time since. And I was surprised to see the share spent on education being quite low, and not showing as much of a spike in recent years, despite other stats that show the price of college skyrocketing. This could be because not everyone goes to college, and because although the rack rates for tuition have skyrocketed, more and more people get financial aid in various forms to cover a lot of it. And of course health care costs have risen hugely, after being quite stable through the '30s and '40s-- but it still surprises me that on average we spend more on health care than we do on housing.

The article the chart accompanied mainly focused on the housing part of the budget, and whether this data suggests housing prices have stabilized or are still likely to fall. David Leonhardt says:

I can’t claim to clear up all the uncertainty. But I do want to suggest a framework for figuring out whether you lean bearish or less bearish: do you believe that housing is a luxury good and that societies spend more on it as they get richer? Or do you think it’s more like food, clothing and other staples that account for an ever smaller share of consumer spending over time?

If you believe housing resembles a luxury good, then you’ll end up thinking house prices will rise nearly as fast as incomes in the long run and that houses today aren’t terribly overvalued. If housing is a staple, though, prices will rise more slowly — with general inflation, as food tends to.

The difference between these two views ends up being huge, and it’s become the subject of an intriguing debate.

After digging into it, I come down closer to the luxury good side, which is to say the less bearish one. To me, housing does not rank with unemployment, the trade deficit, the budget deficit or consumer debt as one of the economy’s biggest problems. But you may disagree.


What do you think?

11 comments:

Personal Finance Fleur said...

Great post!! I will surely nookmark this page. Nice info

Anonymous said...

Lots of meat in that graph. What I notice first is that housing, food and healthcare are almost equal costs. For me, housing = 4x food and food = 4x health care. I can understand health care being higher - aside from a few dental issues, I've been a non-user of healthcare so the cost to me is insurance only. But where can you live for what it costs to eat? Or what are you eating that you buy your mortgage/ rent payment? Unless the point is that home owners make money on their home long term?

My second year of working, post-grad school, I doubled my housing and my food costs, so I think that's more bearish. I think people with more money tend to have more kids, thereby increasing both food and housing costs. Is that less bearish?

Washington Savings Bank said...

Interesting to see how personal budgeting has changed over the years! Given the increased costs of housing and healthcare, it is more important than ever that people have smart savings plans. Trends are showing that these costs will continue to rise and it's important to be prepared.

Anonymous said...

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Joey Gray said...

Thanks for this one, so rich in information. There may be shifts in household spending as a response to global economic spending. Please visit my site for more insights. :)

Mr. Online Investment said...

Hi Madame X! It's interesting to see the trends over the past decades, and as you mention I am also surprised to see that education spending has not risen at a faster rate...It will be interesting to see a chart of this type for the past 20 years. Did the article mention anything about how much people are actually saving? This should be included in personal budgets ;)

FinCar said...

Household expenses generally takes off major budget. Having to deliver some changes that you consider little things practically cost a lot as you will make an evaluation. Being creative and innovative will bring just an amazing budget reduction.

Jerry said...

That's amazing that healthcare is so high even for those that have health insurance. Leads me to think to think that a compulsory program like what we have coming up may end up costing people more than less.

nick said...

i agree jerry. this is some great info, it's always good to look back and see how our time period compares with the past.

Dividend Monk said...

Interesting graph. I would never have expected that people spent less and less on food over the years.

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