Posted 06/24/2021 in Family Finance

Do Family Expenditures Depend on Income, Age, and Geography?

Do Family Expenditures Depend on Income, Age, and Geography?

Do Family Expenditures Depend on Income, Age, and Geography?

Each family is unique.   When economists talk about the “typical, average American household,” it’s really an average of all households’ income and spending.  When comparing your own budget to others, it is important to realize there are three things influencing all of these budgets and you are better off if you can limit your comparisons to households similar to your own.

What are the three strongest influences on how much money we spend on various things?

  1. Your Family Income
  2. Your Age, and
  3. Where you live.

Let's review how these factors influence what our expenditures look like..


How do American Family Expenditures Vary by Income?

First, let's look at some figures.

Figure 1:  Household Annual Expenditures based on Age and Family Income before Tax

Unsurprisingly, family expenditures are primarily driven by their annual income.  The higher the income, the higher the expenditures.

For example, 25-34-year-olds making $30,000 to $40,000 in annual income before tax spend on average $39,040 each year (see red arrows in Figure 1 above).  How can a family spend more than they earn each year?  For low-income families the answer oftentimes is that they receive financial support from various government programs (such as EBT cards, child support, housing support, etc.).

Meanwhile 25-34-year-olds earning $40,000 to $50,000 in income before tax spend $45,180 (see red arrows in Figure 1 above).  So, in this example households earning $10,000 more in annual income before tax spend about $6,000 (or 16%) more each year (saving the rest).

Why is this?

Higher income professions have official and unofficial expectations for how people dress, what vehicle they drive, or even where they live.  In some occupations, people who want to do business with wealthy clients need to project an image of wealth, too.  For example, Walmart cashiers are asked to wear tan slacks and a navy shirt under the Walmart-issued vest; they can live wherever they choose.   Meanwhile, new executives hired by Walmart’s headquarters are often assigned a Realtor—who casually points out that most of the company’s executives live in two specific, gated neighborhoods just outside Bentonville, Arkansas, with higher priced homes than most of the area.  People hoping to do business with Walmart executives, such as vendors for the products they carry, may choose to live in these two high-priced neighborhoods, simply to “casually” bump into their neighbor/clients at the country club, while jogging, or when hanging out at a neighborhood party.  In these ways, earning a higher income is tied to higher expenses.

Also, the higher someone’s income, the less eligible they are for assistance programs.  Even though their income has increased, so has the amount of expenses they need to cover without help.  An obvious example is unemployment benefits.  A less obvious example would be how others behave towards a person, like whether they insist on picking up the tab for a shared meal, or offering to split it down the middle, or “going Dutch” meaning each pays for her own meal.  Knowing a person’s income level can subtly influence others’ expectations.  

In addition, when someone receives a raise, a common mental accounting bias tells the person, “You earned more, you can spend more.”  This bias exists whether or not the person is in debt.  In an economics textbook, the person would use the extra money to pay down the debt; but in real life, nobody behaves like an economics textbook..


How Do American Family Expenditures Vary by Age?

Age also does have an influence, though a lot less than income.  As one would expect, younger people, even if they earn the same amount as older folks, spend a bit less (see Figure 1 above).  Let's take a look at families earning $50,000 to $70,000 per year.

If we compare two age groups, the 25-34-year-olds versus 45-54-year-olds (see blue arrows in Figure 1 above), we can see that they have annual expenditures of $51,670 and $53,060 respectively (a difference of $1,390 or almost 3%).  

Figure 2:  Expenditures by Age for Income Group $50k to $70k

Typically, family expenditures are relatively low when people are young.  With age, expenditures tend to go up and after 55 they start declining.  Why is that?  There is a pretty simple explanation.  When people are young, healthy, and don't have kids, their expenses tend to be lower.  Kids entering our lives bring not just the absolutely amazing joy of parenthood but also a whole bunch of additional expenses associated with kids.  For example:

  • Kids clothes (which they outgrow super fast),
  • Toys (which they break very quickly),
  • Computers and tech gadgets (or even a car when they become bigger),
  • Daycares, sitters, camps,
  • Birthday parties, Scout trips,
  • Doctor appointments, dentist appointments, and even braces with an orthodontist,
  • Sports equipment and league fees, music instruments and lessons, and dance schools,
  • And of course a big one: college tuition!

And what happens when parents become "empty nesters"?  Well, many of their expenses can go down, especially if they downsize their home from a 5-bedroom / 4-bath McMansion to a nice, cozy condo half that size.  One expense, however, does go up significantly when people become older.  Yes, you guessed it.  Healthcare..


How Do American Family Expenditures Vary by Geography?

Similar to age, geographic location also does have an influence on American families’ expenditures.  But it has a significantly smaller impact that that of a family’s income.  Families in the Midwest and South on average have lower expenditures than those in the Northeast and West (see Figure 3 below).

Based on age, younger households spend the least amount in all geographies. Spending climbs as people become older, reaching the peak spending at the age of 45-54 (that's about when kids have grown and are facing college tuition) and then decline as families retire and downsize.

Figure 3:  Household Annual Expenditures based on Age and Geographic Location

On average, family expenditures in the Northeast and West tend to be 10-15% higher than those in the Midwest and South.  About half of that difference is due to the higher cost of housing.  The other half is due to all other cost of living differences between these geographic areas.


In conclusion, we have looked at three factors influencing the differences in American families’ expenditures and discovered that by far the most significant factor is family income. The higher the income, the higher the household expenditures.  Two other factors, age and geographic location, also influence the family expenditure level, but to a lesser extent than income.   Families are often in debt when income is less than $40,000 and start saving money when income is above $50,000.  Families tend to reach their highest level of expenditures around the age of 45-54 (Figure 3 above), when their kids reach the college age.  And families living in the lower cost geographic areas, such as the Midwest and South, tend to have lower family expenditures compared to those living in the Northeast and West.  Again, each family is unique; these influencers help explain average figures.

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