Where Does the Money Go?

Volume 2 Issue 2007

In a recent survey, over three quarters (76%) of American workers ages 35-44 and 60% of workers ages 45-54 said they have less than $100,000 in savings and investments, and a full quarter of workers in all age groups said they have no savings at all.* Since many of today’s workers won’t receive traditional pension benefits after they retire, their future financial security may depend on saving more during their working years. Identifying where the money goes now can be a first step to freeing up “extra” money for saving.

The Basics

According to government statistics, on average, Americans devote about half of their household budgets to food, clothing, and housing.** Of those three basic necessities, housing consumes by far the largest share of expenditures.

Plus Transportation and Health Care

Spending for transportation, with an 18% share, ranks above spending for food and clothing combined. While many consumers are feeling the pinch of higher health-care costs, spending for health care still represents only 5.7% of total household expenditures.

Changing Attitudes

Additional research reveals that the number of things Americans say they can’t live without is growing.*** The table shows some of the items that consumers increasingly rank as necessities rather than luxuries.

	2006	1996
	% of adults rating item as a necessity
Microwave Oven	68	32
Home Computer	51	26
Dishwasher	35	13
Clothes Dryer	83	62
Home Air Conditioning	70	51
Car Air Conditioning	59	41
Cable or Satellite TV	33	17

Dividing a budget into “must have” and “would like to have but could do without” categories can help individuals prioritize their spending and allocate money for long-term financial goals.

* The Retirement System in Transition: The 2007 Retirement Confidence Survey, by Ruth Helman, Mathew Greenwald & Associates; Jack VanDerhei, Temple University and EBRI Fellow; and Craig Copeland, EBRI. EBRI Issue Brief No. 304, April 2007. Primary residence and any defined benefit plan are not counted in determining the under $100,000 total.

** Consumer Expenditures in 2005, U.S. Department of Labor, U.S. Bureau of Labor Statistics, Report 998, 2007.

*** Luxury or Necessity? Things We Can’t Live Without: The List Has Grown in the Past Decade, Pew Research Center, 2006.