Socio-economic Classes Make and Spend Their Money Very Differently

Much has been made of the widening gap between the richest and poorest in America. But, a recent study shows a difference in the ways that the classes make and spend their money and helps explain why issues like inflation and economic recovery are of such differing degrees of importance to the rich and the poor, respectively.

Much has been made of the widening gap between the richest and poorest in America. But, a recent study shows a difference in the ways that the classes make and spend their money and helps explain why issues like inflation and economic recovery are of such differing degrees of importance to the rich and the poor, respectively.

Since the economy began recovery following the Great Recession in 2007, food and housing prices have begun a steady march uphill. For those in the lower classes, this increase is hard on their already tight budgets. This is due to, despite low overall inflation, lower-income Americans spend a disproportionate share of their income on food and housing.

According to a new report by the US Labor Department, as reported in the Wall Street Journal, the bottom 10% of American earners devote 42% of their spending to housing, and 17% to food. That is a grand total of 59% of their total spending. However, America’s wealthiest 10% devote a mere 31% of their spending to housing and 11% to food. That makes their total expenditures on food and housing just 42%; a difference of 17% between the classes.

While richer people may pay more in total on housing and food, the percentage of their income going to these expenses is proportionally much lower. On the other hand, they spend much more on transportation, insurance, retirement accounts, and other financial products (around 17% of their income) than lower classes. Meanwhile both the top and bottom 10% both spend more on education than the other 80% of earners in the middle.

This explains why different households feel the effects of inflation much differently: rich and poor people typically spend their money in different ways. Indeed, they even spend differently than those in the quickly diminishing middle. The way they get their money is just as different.

The poorest 10% of Americans receive more public assistance than any other group.  The next 10% get more than half of their income from Social Security and retirement programs. The 30%-40% range receive a lot of their income from retirement, meaning retirees constitute a large part of the lower-middle class. On the other hand, the top 50% of American receive at least 75% of their income from wages and salaries. The top 10% get at least 10% of their income from other sources, often self-employment.

While financial analysts are quick to point out that the Labor Department’s Consumer Expenditure Survey (upon which the report is based) is not 100% accurate, it does provide some interesting possible insights. It also serves as a reminder of the differences in how the rich and poor earn and spend their money, and why a diminishing middle class has such a polarizing effect on American politics.