Topic: Where the Poor Spend their Money

Walmart-associate-produce-e1392827617943The new iPhone or healthcare?

There’s a perception that those on welfare are spending their money on alcohol and drugs, and the recent comment from Utah Congressman Jason Chaffetz that “Americans just need to choose between buying the new iPhone and healthcare” further affirms this perception. Chaffetz’s point is already foolish given that smartphones are barely a luxury in today’s society. But let’s take a look at some studies done on consumer spending from the rich and poor.

The first picture to look at is how the poor and rich are spending their money as a percentage of their income. The tricky part is different articles draw different lines on spending categories, what constitutes poor/rich, and sometimes use different sources of data which might lead to inconsistencies in the numbers.

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NPR, 2012
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WashingtonPost, 2015
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The Atlantic, 2015

Here you can see that the poor spend a larger chunk of their budget on necessities such as food, utilities, and healthcare. There is an inconsistency in the education percentage, but the rich spend more on entertainment, and dedicate significantly more on savings.

We can also look at why this is the makeup of spending.

  • A study conducted by the University of Michigan in 2016 find that poor people spend more money on toilet paper than rich people do because they dont have the cash to buy in bulk and have the luxury to time their purchases on a sale. Being poor can actually be more expensive.
  • The American Council for an Energy-Efficient Economy in 2016 find that low income households all spend a greater percentage of their income on utilities than the average family. This is due to less efficient housing and limited access to energy efficient programs. Being poor doesn’t give you that luxury of finding better options.
  • A JPMorgan Chase analysis in 2016 of credit and debit card transactions find that the poor spend as much money at restaurants compared to all but the wealthiest. However, it doesnt necessarily mean the poor is splurging on fancy restaurants- money is spent on fast food chains where they can get a quick and cheap meal without losing out on time or costs of transportation. It also means that the rich can cover their food essentials but also have much more to spare.
  • FeedingAmerica conducted a poll in 2014 about those who can’t afford food. 66% reported choosing between buying food and paying for medicine and healthcare. 40% say they water down their food and beverages. 69% said they can only afford to pay their utilities or buy food in the past year. So percentages can reflect how much is being spent, but not if that percent satisfies the need of the category.

These point to some of the tradeoffs that the poor are making constantly, but that makes me struggle with why the entertainment percentage (not the dollar amount) is so close between the rich and the poor. If, in fact, the poor are making the tradeoff between their necessities and entertainment, it seems like necessities will win out easily. I’m not sure whats captured in ‘entertainment’ but on the other hand, it’s also silly to say that there is no value in spending on entertainment. But at the end of the day, all studies point to the poor spending more of their income on necessities and what keeps them alive (easily debunking Chaffetz’ ‘iPhone or healthcare’). So to not give the poor any money because of the perception that they are financial irresponsible is simply not reflected in the data.

 

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