How much money does the average American earning $40,000 a year spend on housing-related expenses? What percentage of the total spending of a typical 58 year old American goes to buy food and alcoholic beverages? And how much does the average American consumer unit (the personable phrase the data jocks at the BLS use to describe the people who spend money in the U.S.) put toward their retirement savings?

Even though the government collects all this data each year in the Consumer Expenditure Survey (CES), the answers to these questions aren't necessarily easy to extract. The government sorts the individuals and households who make up the so-called consumer units by what age range they fall into, or by what income range they earn, or by education level or a whole bunch of other basic categories, but they don't narrow the data down enough to isolate the people between Age 25 and 34 who earn between $30,000 and $39,000 before taxes, for example. Instead, we get a picture that includes everyone who falls in a given age range or whose annual income falls inside a given range, and that's as close as we can get from the data that's made freely available.

Until now. We've mined the Consumer Expenditure Survey and identified the kinds of spending that are driven by income and that are driven by age. We did this by first identifying where we saw the widest spreads in the datapoints for either income or age-based variation in the CES, and then by using the data regression tools at Zunzun to create a mathematical model for each major expenditure item.

We've put the outcome of our analysis at your fingertips in the tool below, in which you can simply enter the age of the "reference person" (another BLS term of endearment) and their annual before-tax income to calculate how much such an individual spends on any of the major expenditure categories we've listed. We'll also determine what percentage of the total spending that each category represents.

Each of the categories listed above correspond to the top line data for each presented in the 2008 CES data tables from which we obtained the data used in our regression analysis, except as follows:

1. Food and Alcoholic Beverages. Here we combined the top line expenditures from the 2008 CES income table for both Food and Alcoholic Beverages.

2. Personal Taxes. We added the average amount of Federal, State and Local, and Other taxes as taken from the 2008 CES income table, along with our estimate of the average Social Security taxes paid by each age group. We determined this latter figure by multiplying the indicated annual income provided by Wages and Salaries data by 6.2%. While there is a cap on the amount of income subject to Social Security taxes, we neglected to consider it for this application because the income ranges that would be affected are in part produced by combining the incomes earned by the members of the average CES' consumer unit for each income level. As a result, it would be very easy for a consumer unit with two incomes to be above that individual income threshold without being affected by Social Security's income cap. Finally, we omitted the effect of the 2008 stimulus tax credit upon personal income taxes paid altogether, since this represents a factor unique to 2008.

3. Entertainment and Reading. Here, we combined the top line expenditures for both Entertainment and Reading that we obtained from the 2008 CES income table.

4. Retirement Savings. This is a hybrid of both income-driven and age-driven spending patterns. For this category, we started with the top line data for Personal Insurance and Pension expenditures that we found in the 2008 CES income table and subtracted the expenditures for Life and Other Personal Insurance from it, along with our estimate of Social Security taxes, which we described above. Then, using the data we obtained in the 2008 CES age table, we accounted for the draw-down in retirement savings that we observed corresponds to approximately when the reference person in a consumer unit reaches the ages where they no longer save for retirement, but instead begin taking it (that transition begins approximately at 59.5 years of age.)

5. All Other Expenditures. For this category, we combined the expenditures for Life and Other Personal Insurance with the top line expenditures that we found in the 2008 CES income table for Personal Care Products and Services, Tobacco Products and Smoking Supplies and also Miscellaneous expenditures.

What can you do with this information? Well, if you were ever curious to see how your consumer unit's spending compares to that of the average American consumer unit, at least of similar age and income, our tool's output will show you what that average level of spending is!

Data Sources

Bureau of Labor Statistics. "Table 3. Age of reference person: Average annual expenditures and characteristics, Consumer Expenditure Survey 2008". ftp://ftp.bls.gov/pub/special.requests/ce/standard/2008/age.txt. Accessed 16 November 2009.

Bureau of Labor Statistics. "Table 2. Income before taxes: Average annual expenditures and characteristics, Consumer Expenditure Survey, 2008". ftp://ftp.bls.gov/pub/special.requests/ce/standard/2008/income.txt. Accessed 16 November 2009.

Bureau of Labor Statistics. "Table 2301. Higher income before taxes: Average annual expenditures and characteristics, Consumer Expenditure Survey, 2008". ftp://ftp.bls.gov/pub/special.requests/ce/standard/2008/higherincome.txt. Accessed 16 November 2009.

Labels: demographics, economics, income, tool

- posted by Ironman at 6:20 AM | Permalink |

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