Runaway Spending

Chapter Summary

Many scholars explain household overspending as the product of consumerism, a cultural mind-set or ideology that hyper-valorizes the acquisition and accumulation of consumer products. Collectively, Americans are said to equate the acquisition of consumer goods with well-being, personal fulfillment, or moral rectitude. We are said to forge our personal identity through products we acquire. We shop recreationally, and sometimes knowingly bury ourselves in unmanageable debt.

This view interprets financial problems as the result of unrestrained acquisitiveness, social climbing, and poor impulse control.  This, in turn, leads to facile advice, like people cut their spending on fancy coffees or avocado toast to restore their finances.  It certainly does not sow sympathy for those who face financial problems.

The problem with this narrative is that American households are not spending more money on frivolous consumer goods.  Consumer spending data shows that they have been spending more money on wellbeing essential goods, particularly healthcare, education, and housing.  Prices on these products have risen faster than wages and general prices.

Key Findings

  • Nominal expenditures have slowly been growing faster than incomes over the past three decades.
  • Inflation-adjusted spending levels have been mostly flat over the past twenty years, but this flatness masks variation across product groups.
  • Americans spend less on a range of products, compared to thirty years ago.  For example, households typically spend less on things like clothing, home furnishings, appliances, personal care goods and services, alcohol and tobacco, and reading materials.
  • Spending has been relatively constant in many markets, including those for utilities, medical supplies, and entertainment
  • In general, the absence of spending pressures in the above-mentioned markets seems to be a product of falling prices.  We may even by consuming more products in these categories, but globalization and technological change has made them cheaper.
  • Spending has grown considerably in education and healthcare, and to some degree with shelter.  Prices have risen markedly in these markets.
  • Education and healthcare spending are typically low, but they can hit households in waves over a lifecycle, which disrupt lifetime savings, can incur lasting debt, and hinder the acquisition of wealth.
  • Education expenditures typically hit households in their early 20s and late 40s through early-50s.
  • Healthcare costs are a continuing issue for households.  They typically begin to rise when heads are in their 30s, and remain an ongoing threat onward.
  • Although cheap housing is available, families purchase access to education through their home purchases, and homes in well-performing school districts tend to be pricier.
  • Many of the expenditures that strain households are for wellbeing-essential goods and services.  The wisdom of foregoing things like college or health insurance may help balance budgets in the short-term, but they can present lasting, substantial risks to a family’s financial wellbeing over the entire lifecycle.  Balancing budgets is not as easy as cutting out avocado toast.

Tables and Figures