How do you spend your hard-earned money?
Whether you are extremely frugal, or you’re known to indulge in the finer things in life, how you allocate your spending is partially a function of how much cash you have coming in the door.
Simply put, the more income a household generates, the higher the portion that can be spent on items other than the usual necessities (housing, food, clothing, etc), and the more that can be saved or invested for the future.
Earning and Spending, by Income Group
Today’s visuals come to us from Engaging Data, and they use Sankey diagrams to display data from the Bureau of Labor Statistics (BLS) that helps to paint a picture of how different household income groups make and spend their money.
We’ll show you three charts below for the following income groups:
- The Average American
- The Lowest Income Quintile (Bottom 20%)
- The Highest Income Quintile (Highest 20%)
Let’s start by taking a look at the flows of the average American household:
The Average American Household – $53,708 in spending (73% of total income)
The average U.S. household has 2.5 people (1.3 income earners, 0.6 children, and 0.4 seniors)
As you can see above the average household generates $73,574 of total inflows, with 84.4% of that coming from salary, and smaller portions coming from social security (11.3%), dividends and property (2.6%), and other income (1.7%).
In terms of money going out, the highest allocation goes to housing (22.1% of spending), while gas and insurance (9.0%), household (7.7%), and vehicles (7.5%) make up the next largest categories.
Interestingly, the average U.S. household also says it is saving just short of $10,000 per year.
The Bottom 20% – $25,525 in spending (100% of total income)
These contain an average of 1.6 people (0.5 income earners, 0.3 children, and 0.4 seniors)
How do the inflows and outflows of the average American household compare to the lowest income quintile?
Here, the top-level statistic tells much of the story, as the poorest income group in America must spend 100% of money coming in to make ends meet. Further, cash comes in from many different sources, showing that there are fewer dependable sources of income for families to rely on.
For expenditures, this group spends the most on housing (24.8% of spending), while other top costs of living include food at home (10.1%), gas and insurance (7.9%), health insurance (6.9%), and household costs (6.9%).
The Highest 20% – $99,639 in spending (53% of total income)
These contain an average of 3.1 people (2.1 income earners, 0.8 children, and 0.2 seniors)
The wealthiest household segment brings in $188,102 in total income on average, with salaries (92.1%) being the top source of inflows.
This group spends just over half of its income, with top expenses being housing (21.6%), vehicles (8.3%), household costs (8.2%), gas and insurance (8.2%), and entertainment (6.9%).
The highest quintile pays just short of $40,000 in federal, state, and local taxes per year, and is also able to contribute roughly $50,000 to savings each year.
Spending Over Time
For a fascinating look at how household spending has changed over time, don’t forget to check out our previous post that charts 75 years of data on how Americans spend money.
Mapped: The Salary Needed to Buy a Home in 50 U.S. Metro Areas
The annual salary needed to buy a home in the U.S. ranges from $38k to $255k, depending on the metropolitan area you are looking in.
The Salary Needed to Buy a Home in 50 U.S. Metro Areas
Over the last year, home prices have risen in 49 of the biggest 50 metro areas in the United States.
At the same time, mortgage rates have hit seven-year highs, making things more expensive for any prospective home buyer.
With this context in mind, today’s map comes from HowMuch.net, and it shows the salary needed to buy a home in the 50 largest U.S. metro areas.
The Least and Most Expensive Metro Areas
As a reference point, the median home in the United States costs about $257,600, according to the National Association of Realtors.
|Median Home Price||Montly Payment (PITI)||Salary Needed|
With a 20% down payment and a 4.90% mortgage rate, and taking into account what’s needed to pay principal, interest, taxes, and insurance (PITI) on the home, it would mean a prospective buyer would need to have $61,453.51 in salary to afford such a purchase.
However, based on your frame of reference, this national estimate may seem extremely low or quite high. That’s because the salary required to buy in different major cities in the U.S. can fall anywhere between $37,659 to $254,835.
The 10 Cheapest Metro Areas
Here are the cheapest metro areas in the U.S., based on data and calculations from HSH.com:
|Rank||Metro Area||Median Home Price||Monthly Payment (PITI)||Salary Needed|
After the dust settles, Pittsburgh ranks as the cheapest metro area in the U.S. to buy a home. According to these calculations, buying a median home in Pittsburgh – which includes the surrounding metro area – requires an annual income of less than $40,000 to buy.
Just missing the list was Detroit, where a salary of $48,002.89 is needed.
The 10 Most Expensive Metro Areas
Now, here are the priciest markets in the country, also based on data from HSH.com:
|Rank||Metro Area||Median Home Price||Monthly Payment (PITI)||Salary Needed|
|#6||New York City||$403,900||$2,465.97||$105,684.33|
Topping the list of the most expensive metro areas are San Jose and San Francisco, which are both cities fueled by the economic boom in Silicon Valley. Meanwhile, two other major metro areas in California, Los Angeles and San Diego, are not far behind.
New York City only ranks in sixth here, though it is worth noting that the NYC metro area extends well beyond the five boroughs. It includes Newark, Jersey City, and many nearby counties as well.
As a final point, it’s worth mentioning that all cities here (with the exception of Denver) are in coastal states.
Notes on Calculations
Data on median home prices comes from the National Association of Realtors and is based on 2018 Q4 information, while national mortgage rate data is derived from weekly surveys by Freddie Mac and the Mortgage Bankers Association of America for 30-year fixed rate mortgages.
Calculations include tax and homeowners insurance costs to determine the annual salary it takes to afford the base cost of owning a home (principal, interest, property tax and homeowner’s insurance, or PITI) in the nation’s 50 largest metropolitan areas.
Standard 28% “front-end” debt ratios and a 20% down payments subtracted from the median-home-price data are used to arrive at these figures.
The Best and Worst Performing Wealth Markets in the Last 10 Years
This telling chart shows how national wealth markets have changed over the past decade, highlighting the biggest winners and losers.
The Best and Worst Performing Wealth Markets
A lot can change in a decade.
Ten years ago, the collapse of Lehman Brothers sent the world’s financial markets into a tailspin, a catalyst for years of economic uncertainty.
At the same time, China’s robust GDP growth was reaching a fever pitch. The country was turning into a wealth creation machine, creating millions of newly-minted millionaires who would end up having a huge impact on wealth markets around the world.
The Ups and Downs of Wealth Markets (2008-2018)
Today’s graphic, using data from the Global Wealth Migration Review, looks at national wealth markets, and how they’ve changed since 2008.
Each wealth market is calculated from the sum of individual assets within the jurisdiction, accounting for the value of cash, property, equity, and business interests owned by people in the country. Just like other kinds of markets, wealth can grow or shrink over time.
Here are a few countries and regions that stand out in the report:
Developing Asian Economies
In terms of sheer wealth growth, nothing comes close to countries like China and India. The size of these markets, combined with rapid economic growth, have resulted in triple-digit gains over the last 10 years.
For the world’s two most populous countries, it’s a trend that is expected to continue into the next decade, despite the fact that many millionaire residents are migrating to different jurisdictions.
European nations saw very little growth over the past decade, but the Mediterranean region was particularly hard-hit. In fact, eight of the 20 worst performing wealth markets over the last decade are located along the Mediterranean coast:
|Rank (Out of 90)||Country||% Growth (2008-2018)|
European Bright Spots
There were some bright spots in Europe during this same time period. Malta, Ireland, and Monaco all achieved positive wealth growth at rates higher than 30% over the last 10 years.
While it’s expected to see rapidly-growing economies as prolific producers of wealth, it is much more surprising when mature markets perform so strongly. Singapore and New Zealand fall under that category, as does Australia, which was already a large, mature wealth market.
Australia recently surpassed both Canada and France to become the seventh largest wealth market in the world, and last year alone, over 12,000 millionaires migrated there.
The long-term economic slide of Venezuela has been well documented, and it comes as no surprise that the country saw extreme contraction of wealth over the last decade. Since war-torn countries are not included in the report, Venezuela ranked 90th, which is dead-last on a global basis.
Short Term, Long Term
In 2018, global wealth actually slumped by 5%, dropping from $215 trillion to $204 trillion.
All 90 countries tracked by the report experienced negative growth in wealth, as global stock and property markets dipped. Here’s a look at the wealth markets that were the hardest hit over the past year:
|Wealth Market||Wealth growth (2017 -2018)|
The future outlook is rosier. Global wealth is expected to rise by 43% over the next decade, reaching $291 trillion by 2028. If current trends play out as expected, Vietnam could likely top this list a decade from now with a staggering 200% growth rate.
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