It’s Official: The Rich Buy More

Feb 6, 2006  •  Post A Comment

By Bradley Johnson

Advertising Age

Give credit to the rich: They make more, spend more-and owe more.

The top 20 percent of U.S. households by income collectively spend more than the bottom 60 percent on goods and services, according to data from the Bureau of Labor Statistics’ 2004 Consumer Expenditure Survey, released late last year.

That means the top fifth of households do nearly 40 percent of the nation’s consumer spending. In an economic recovery driven by consumer spending, the rich spent more than their share: These households accounted for 41 percent of the increase in spending from the recession year of 2001 through 2004, according to American Demographics’ analysis.

Will the Pace Continue?

There’s no reason to believe the trend was any different in 2005. There is a question as to whether the pace of spending growth will continue in 2006, for spending is linked to the now-cooling housing market.

Up to this point, the rich bet the house money and won big. Most households (91 percent) in the top fifth are homeowners, but only 18 percent own their homes outright. That’s a lower percentage of mortgage-free homeownership than for any other group.

Those McMansions take a lot of care and feeding. In 2004 the top fifth accounted for 48 percent of mortgage payments. They had enough cash (or credit) left over to buy 48 percent of furniture, 38 percent of big appliances and 33 percent of consumer electronics.

The upper-income set have an urge to splurge on virtually everything. They accounted for 57 percent of consumer spending on “other lodging” (including hotels and vacation homes); 51 percent of fees and admissions (sporting events, movies, concerts, club dues); 40 percent of apparel; 39 percent of newspapers, magazines and books; and 38 percent of restaurant spending.

Consumer Vehicle Sales

The rich drove 44 percent of spending on new cars and trucks in 2004. As with houses, it’s largely borrowed money. The top fifth paid more than one-third (36 percent) of interest on car loans and nearly half (48 percent) of lease payments and other vehicle charges.

In a government survey that covered everything from shoes to booze, the top 20 percent spent less than their share in just two categories: rent (they own) and tobacco (they are mostly white and college-educated, groups less likely to smoke).

Average after-tax income for households in the top fifth (about $125,000) in 2004 was more than twice the national average ($52,000), and their average spending on goods and services ($84,000) was nearly double the average ($43,000).

Most income groups actually are holding their own on spending. Households in the second-highest quintile did 23.5 percent in 2004, little changed from 1984 (23.2 percent); the next rung down held at around 17 percent; the second group from the bottom went from 12.7 percent to 12.6 percent.

Bottom 20 Percent

So who lost? The poor, who have the least education and biggest obstacles to real income gains. It shows: The bottom 20 percent of households saw their share of spending fall from 9.6 percent in 1984 to 8.2 percent in 2004. That’s a 1.4-point drop-exactly what the top group gained over that period.

No big deal? Yes, big deal: 1.4 points translate to $70 billion in spending in 2004, or an extra $3,000 for each rich household. In 1984, a top 20 percent household did 3.8 times the spending of a bottom-fifth family; in 2001, the multiple was 4.1. By 2004, those at the top did 4.7 times the spending of those stuck at the bottom.