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.
Visualized: The Power of a Sustainable Investment Dollar
Do sustainable investments make a difference? From carbon emissions to board diversity, we break down their impact across three industries.
Visualizing the Power of a Sustainable Investment Dollar
Sustainable investments are booming.
Between January and November 2020 alone, investments in sustainable ETF and mutual funds grew 96%. The UN Principles of Responsible Investment now has over 3,000 signatories representing over $100 trillion in assets. The U.S. Commodity Futures Trading Commission established a Climate Risk Unit to analyze climate risk across derivative markets, and as of March 2021, new sustainability disclosures have come into effect in Europe.
But how do we know if sustainable investments have made a difference?
To answer this question, the above infographic from MSCI examines the effect of a sustainable investment dollar by looking at real-world examples.
A Sustainable vs. Unsustainable Dollar
To start, investing legend Benjamin Graham has compared the stock market to a “voting machine.” Just as consumers vote with their purchasing decisions, investors vote with their investment dollars. Especially in the short term, as more dollars flow to sustainable companies, this builds their exposure and access to capital.
In the long term, meanwhile, the market can be compared to a weighing machine. The market recognizes companies with profitable business models that improve their intrinsic value over time. Ultimately, this allows sustainable companies to expand and continue operating.
Given the rising momentum in both green assets and climate targets, here is how investment dollars have influenced and driven change across three industries.
1. Clean Energy vs. Fossil Fuel
Over the last several years, the energy sector has been associated with many of the problems causing climate change. For this reason, many investors are seeking out greener energy alternatives. But how does moving investment dollars from an ESG laggard to an ESG leader support the environment and society?
First, here is a brief explainer of ESG laggards and leaders:
- ESG laggards: companies with the weakest environmental, social, and governance (ESG) performance in their sector.
- ESG leaders: companies with the strongest environmental, social, and governance (ESG) performance in their sector.
|Industry laggard: U.S. oil & gas company||Industry leader: U.S. utilities company|
|Scale of carbon-intensive business lines equal to 73% of its operation||47% lower CO2 emissions than the industry average|
|This is the equivalent of adding 26 million cars on the road annually||This is the equivalent of removing 9.9 million cars off the road annually|
|1 of 20 oil and gas companies are responsible for contributing to one third of GHG emissions since 1965||Uses 3X as many renewable sources than industry average|
|3X fewer jobs are created vs. energy efficient sector, resulting in lower productivity||This is roughly the same as saving over 9 million pounds of coal burned|
|MSCI ESG Rating: CCC||MSCI ESG Rating: AAA|
Source: MSCI ESG Research
Based on the above example, investors have the ability to finance powerful green initiatives that reduce emissions by almost half, relative to their peers.
2. Safe vs. Unsafe Working Conditions
Weak safety protocols are a key sustainability issue for the industrial sector. Here’s how two companies compare:
|Industry laggard: South African mining company||Industry leader: U.S. mining company|
|11 fatalities in 2019||Zero fatalities in 2019|
|Faced lawsuits from miners surrounding lung diseases contracted from dust exposure in gold mines|
Settlement cost: $350 million
|Board-level oversight monitors health and safety performance|
|Lags behind peers in high incident rates||Leads peers in low incident rates|
|Lags behind peers in setting incident reduction targets||Leads industry in lost time incident rate & total recordable injury rate|
|MSCI ESG Rating: CCC||MSCI ESG Rating: A|
Source: MSCI ESG Research
Despite the risks involved in the sector, investors can choose to support companies that take greater precautions to protect their workers.
3. Building Trust vs. Losing Trust
Over the last several years, the financial sector has faced increased scrutiny over fraudulent activities. Moving investment dollars from an ESG laggard to ESG leader may make a difference:
|Industry laggard: U.S. bank||Industry leader: Dutch bank|
|$3 billion settlement in creating fictitious accounts to meet aggressive sales targets||Sustainable finance portfolio valued at over $20 billion|
|Drop in top-tier bank ratings||13% annual increase in climate finance|
|Board effectiveness questioned||Includes over 60 green loans, mobilizing environmentally friendly projects|
|Resignation of board members||Over 55% of board is female|
|MSCI ESG Rating: CCC||MSCI ESG Rating: A|
Source: MSCI ESG Research
From board diversity to green loans, a sustainable investment dollar supports companies that are actively advancing society and the environment.
Sustainable Investment: The Time to Act
Recently, investor dollars and shareholder activism have been closely linked.
Between 2018 and 2020, large institutional investors filed 217 shareholder proposals on climate change alone, putting increased pressure on companies. Meanwhile, 270 proposals were filed on corporate political activity and 228 on fair labor and equal employment opportunity over the same timeframe. Across all ESG proposals, $2 trillion in assets were pushing for more equitable corporate action.
Through the power of a dollar, investors can send a clear signal to companies: the time for sustainable investing is now.
Visualizing the Snowball of Government Debt
After an unprecedented borrowing spree in response to COVID-19, what does government debt look like around the world?
Visualizing the Snowball of Government Debt in 2021
As we approach the second half of 2021, many countries around the world are beginning to relax their COVID-19 restrictions.
And while this signals a return to normalcy for much of the global economy, there’s one subject that’s likely to remain controversial: government debt.
To see how each country is faring in the aftermath of an unprecedented global borrowing spree, this graphic from HowMuch.net visualizes debt-to-GDP ratios using April 2021 data from the International Monetary Fund (IMF).
Ranking the Top 10 in Government Debt
Government debt is often analyzed through the debt-to-GDP metric because it contextualizes an otherwise massive number.
Take for example the U.S. national debt, which currently sits at over $27 trillion. In isolation this figure sounds daunting, but when expressed as a % of U.S. GDP, it works out to a more relatable 133%. This format also allows us to make a better comparison between countries, especially when their economies differ in size.
With that being said, here are the top 10 countries in terms of debt-to-GDP. For further context, we’ve included their 2019 and 2020 values as well.
|Rank (2021)||Country||Debt-to-GDP (2019)||Debt-to-GDP (2020)||Debt-to-GDP (April 2021)|
|#9||🇨🇻 Cape Verde||125%||139%||138%|
Japan tops the list with a ratio of 257%, though this isn’t really a surprise—the country’s debt-to-GDP ratio first surpassed 100% in the 1990s, and in 2010, it became the first advanced economy to reach 200%.
Such significant debt burdens are the result of non-traditional monetary policies, many of which were first implemented by Japan, then adopted by others. In the late 1990s, for instance, the Bank of Japan (BoJ) set interest rates at 0% to counter deflation and promote economic growth.
This low cost of borrowing enables businesses and governments to accumulate debt much more freely, and has seen widespread use among other developed nations post-2008.
What are the Risks?
Given that a majority of countries in this visual are red (meaning their debt-to-GDP ratios are over 50%), it’s safe to say that government borrowing is common practice.
But are large government debts a cause for concern?
Some believe that excessive borrowing will lead to higher interest costs in the long run, which could detract from economic growth and public sector investment. This theory is unlikely to become a reality anytime soon, however.
A recent report by RBC Wealth Management reported that the cost of servicing U.S. federal debt actually decreased in 2020, thanks to the low borrowing costs mentioned previously.
Perhaps a more prescient question would be: how long can the world’s central banks keep interest rates at near-zero levels?
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