Do the Rich Really Spend on Benzes and Private Jets?
In the last fiscal quarter, Americans spent $9,229.6 billion on personal consumption items. That's pretty large, but next time you think you've really made it, toss this thought around in your noggin. With his net worth hovering around $50B, Bill Gates could cover all the expenses of every American for a year and still be in sole possession of #12 on of the Forbes 400 list of richest persons. According to the U.S. department of Commerce, in Q2 of 2006 the average(?) American spent the majority of their personal income on, and this was a big surprise, medical care. That's right, you've got to pay the doc. If you thought it was your imagination that medical care was ridiculously expensive, you're wrong. Your imagination's not that good. American's spent more on medical care last quarter than any other single spending category. Staying alive, and, one would assume, reasonably healthy, consumed over 17.1% of our consumption dollars!
Housing, a category you'd think was the largest, came in a distant second. Keeping a roof over your head demanded, on average, 14.8% of your personal spending. Well, at least for homeowners in most locales, the outlay for housing doubles as a healthy investment. Historically, home appreciation has averaged about 2% over the rate of inflation, and home ownership offers some nice tax benefits to boot. If you live in So. Cal, the Bay Area, Boston, Seattle, or Las Vegas, you've beat the average handily over the last few years.
Fish gotta swim, birds gotta eat, and so, food was the third largest personal consumption category. Tasty victuals persuaded a hair over 13.8% of your dollars to jump from your wallet. Walkin's no fun either, unless it's on a beach at sunset, thus the American love affair with Benz's creation cost the average Joe/sephene about 4.8% of their paycheck each month. Keep in mind that, according to the USDOT, over 8% of U.S. households don't own a motor vehicle. This means that those households that do have one or more cars spend more than 4.8%.
That would have occupied forth place on the list, but it was actually eclipsed by the crazy desire of people to keep their home warm and cozy, and not to trip over the kid's toys in the dark. Keeping your home comfy isn't worth much if it burns down, or is swept away because you built it in a flood plain either, so the bank demands you keep it insured. Home operation expenses caused you to fork out, on average, 5.3% of your personal expenditures.
These are the U.S. averages for personal spending. What is different for those who are a bit better than average on the financial security ladder? What do they do differently than Joe Average? First of all, many of those who find themselves with a sudden windfall tend to experience a pretty bumpy ride. Despite what you'd think, may who win money are soon broke, or close to it. The causes seem to be lack of education and fiscal restraint. The primary culprits are, surprise, surprise, overspending and poor investments. By the numbers, those who play the lottery tend to be poorly educated, thus, many of those who win are also poorly educated. They are, therefore, poorly equipped to handle what most would think to be a bit of good fortune. The media is replete with lotto winners losing everything to, and these seem to be the most common sources of financial demise; gambling, drugs, poor investments, giving money to family, cars, vacations, poor investments. Most of those who frequent PF blogs would probably fare much, much better.
How about those who made their fortune by actually working hard, saving, and investing? Where do they spend? First of all, according to a 2003 study of America's wealthiest consumers performed by the American Affluence Research Center (yes, it really exists), the average American with a net worth of over $1,000,000 doesn't earn as much as you'd think. Many (92%) earned less than $100,000/ year. This figure is slightly misleading, because one of the leading ways for them to have attained their wealth was through entrepreneurship, and many had already sold their businesses for a handsome profit. They now lived on fixed incomes, thus the low annual income figure. 12% of those surveyed in this demographic however, continued to run their own businesses. Others, and this figure has probably increased dramatically in the last few years, had a substantial portion of their net worth in their residences, and that was how they achieved their net worth. Most did it the old fashioned way, by living a fairly frugal life for many years, saving and investing wisely and consistently, and only occasionally splurging. The average of this group was 55.
So, where do these millionaires and almost millionaires spend their money, and what do they do? Much the same way as the rest of us, but on nicer things. It's very important to note, however that they are usually rewarding themselves after a fairly frugal lifestyle. This group is 328% more likely than the average consumer to own a Cadillac (possibly reflecting the older age of this demographic, sorry GM), and 162% more likely to drive a Benz. They tend to be patrons of the arts and give much more to charity than the average. They are 127% more likely to be involved in civic issues than the typical consumer. They are voracious readers, with two of their favorite magazines being Kiplinger Personal Finance and U.S. News & World Report.
Of those that are substantially wealthy, with net worths exceeding $2 million, 11% are self employed, only 5% are retired, and nearly all have incomes in excess of $100,000, with most far above that figure. 81% have a college degree. While those affluent consumers in the previous group can be found throughout the U.S., those in this wealthy group are concentrated in the major metro areas such as NY, NY, Boston, San Francisco and Los Angeles. This group spends big bucks on home improvements. They are 333% more likely than average to spend $5,000 or more annually on home improvements to their palatial residences. If you're watching the U.S. Open and remember Wimbledon, you doubtlessly noticed that half the ads seemed to be for luxury cars or investment companies. There's good reason for that. Those in this demo really do spend quite a bit of time and money on golf and tennis, just like the stereotype says. They love good beer too. Their fav domestic is Sam Adams. Like the others in wealthy demographic groups, these folks spend substantial monies on charitable causes.
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