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Jan 03, 2017

Chart: How Does the Typical American Household Spend Their Money (and How Has It Changed Over Time?)

Good question to open your Budgeting unit.

Start with this question: Looking at the the six spending categories below (NOT ordered in any specific way), what percentage did households spend on each category in 2014? Must add up to 100%:

screen-shot-2017-01-03-at-9-30-54-am

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Eyeballing the numbers for 2014, rounding up to the nearest thousand and excluding all categories beyond the top 6:

  • Housing: $18,000
  • Transportation: $9,000
  • Food: $6,000
  • Clothing: $2,000
  • Health Care: $4,000
  • Rec & Entertainment: $3,000
TOTAL for all six categories: $42,000
Dividing each of these costs by the total AND reordering from largest to smallest, you arrive at the following percentages:
  • Housing: $18,000/$42,000 = 43%
  • Transportation: $9,000/$42,000 = 21%
  • Food: $6,000/$42,000 = 14%
  • Health Care: $4,000/$42,000 = 10%
  • Rec & Entertainment: $3,000/$42,000 = 7%
  • Clothing: $2,000/$42,000 = 5%

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Questions for students:

  • How did your initial guess compare to the actual results for 2014? Which costs did you underestimate? Which costs did you overestimate?
  • These are the costs for the typical American household. How do you think the typical household in your town spends their money?
  • Do the same analysis that you did for 2014 for the 1941 period.
    • Are people spending their money in the same or different ways?
    • Which categories are they spending more on (as a percentage of total)?
    • Which categories are they spending less on?
  • Based on your analysis for 2014, which two cost categories do you think households should be paying the closest attention to? Are these costs typically fixed costs (don’t change over time) or variable (change on a month to month basis)?
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About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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