There is always talk of the economy and how it is fluctuating, but how are Americans really spending their money? Taking a look at the top five expenses and how they’ve changed over the years can do a lot to explain why the economy is in its current shape and how it might change.
Housing
If you keep up with anything regarding finance, then it should come as no surprise that housing is the biggest expense in the average American’s life. For the most part, the housing market has recovered from the 2008 crash, with the median price of a house up to $221,900. New houses are even more expensive, hitting a median of $296,900.
What isn’t quite as obvious is that metro area pricing is what drives the market. In cities under 250,000 residents the average home price is still below 2007 metrics. Cities like San Jose and New York are not the only culprits either. Across the country, metro area housing is up anywhere from 14.6 to 23.6 percent.
Transportation
The average household now owns 1.9 motor vehicles. That alone can’t account for how much more Americans are spending on cars than they used to, but even with abnormally low oil this year, the price of gas is still far above historical numbers.
Much more importantly, car loans are for more money and longer terms than ever before. Part of this is to compensate for artificially low interest, but mostly it stems from financial agencies using the auto market to compensate for losses in other areas. So, while Americans are only paying an average of $483 a month for their cars, the extended loan durations are raising the total cost by roughly 15 percent.
Taxes
Taxes are now the third biggest expense in American lives. While there have been brief stints in history where this was true, this is the most sustained tax increase the country has seen. In the U.S. personal income taxes reach an annual revenue of $1.54 trillion. This represents a 404 percent increase from 1973, but the next statistic really tells the story.
From 1973 to 2004, taxes increased by 30 percent. Adjusted for inflation, taxes actually decreased over that span by over 40 percent. Since 2004, taxes have increased by a factor of 400 percent, whether inflation is included or not. The final notable number might not surprise you. Of that 400 percent increase in taxation, 90 percent of the increase occurred since 2012. Taxes are way up, and this happened during Obama’s second term.
Food
Americans are often ridiculed for their consumption of food, and reasonable or not, this number is why. Food is the fourth biggest expense for most, coming in at $6,759 per year. Of that, $2,787 is the average spent on restaurant dining, with $1,200 going to fast food in particular.
These numbers feel pretty big, but they are actually way down from historical numbers, adjusted for inflation of course. Before the 1970s, food was almost as big an expenditure as housing. Since then, the relative cost of feeding a family has declined by 21 percent. So, while Americans still spend heavily on food, a very long and steady trend has made that food less expensive and more available.
Health Care
If it hasn’t been in the news enough, here is a quick reminder. Health care is expensive. It comes in as the number five biggest expense for Americans, but some of these numbers are frustrating and bordering on infuriating. The average annual cost of health care is $4,290, but $2,868 of it comes from insurance premiums.
That means two-thirds of the cost of health care is just paying for mandatory health insurance, but it gets worse. Adjusted for inflation, health care in 2004 was 14 percent higher than in 1973. That’s a pretty gradual rise for 30 years. Since 2004, the inflation adjusted cost has risen an additional 25 percent. Of that increase, the rising cost of insurance accounts for 112 percent.
In simpler terms, the cost of health care has decreased since 2004, but insurance premiums have increased by so much that the overall out-of-pocket cost is much higher. Insurance alone has raised the cost of health care in the last six years by a greater margin than the combined history of the United States. If the dates haven’t given it away yet, the Affordable Healthcare Act did exactly what its critics predicted and raised the cost of insurance astronomically.
Takeaways
Seeing how Americans spend makes it easy to understand how a housing collapse caused the Great Recession. It also explains why experts are nervous about the potential automotive bubble. It also shows why the resurging jobs have been primarily in the service industries.
As trends continue, health care and health insurance are potentially booming markets, but invest with reservations, as politics are sure to play a large role in the industry’s future.
Regards,
Ethan Warrick
Editor
Wealth Authority
