
Consumer expenditure survey illustrating the income divide - qwerty2020
http://erikrood.com/Posts/consumer_expenditures.html
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patio11
If you're curious why:

Income before taxes is not "income before taxes _net of transfer payments_."
(It can't be, because one of the most salient transfer payments in the US, the
EITC, is administered through the tax system.)

One might assume that poverty is sticky and therefore the bottom 20% of
earners is relatively constant, but while poverty might be sticky "low income
in a year" is not sticky on a year-to-year or decade-to-decade basis.

Many people in the lowest 20% for income were middle class N years ago _and
still are_. They're spending out of their savings faster than their savings
throw off interest/dividends. That's OK; their retirement math mandates it.
("Wait, how can you afford a mortgage on $10k a year of inc... oooooh.")

Some folks also deal with substantial income volatility on a year-to-year
basis. Relevantly to many HNers, there are a variety of structures in which
business owners hit the bottom 20% in formative/bad years.

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anovikov
Let me ask a really stupid question: isn't AGE the most defining factor here
rather than race etc.? Especially percentage of those owning a home without
mortgage - if anything, fractions of a percent may buy a home they'd live in
outright, so it must be just because they already paid out that home, and they
are old.

Same for the large percentage of women in lower earning groups and larger
overspending there: that's natural, young women make less money, but they also
get a lot of money from boyfriends, frequently those in the top income group,
and spend it, so why is that a problem at all?

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pianom4n
And if you consider retirees that makes perfect sense.

It's hard to draw any meaningful conclusion from these graphs.

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Mz
_The poorest groups primarily rent._

Breakdowns are "Rent, Home without mortgage, Home with mortgage."

I wonder what percentage of the bottom 20 percent are homeless. Because that
data is not even being included. It assumes the most destitute all have homes
of some sort. This is not true.

~~~
microcolonel
Given that the homeless overall make up about 0.5% of the population, I doubt
it would have much effect on the survey either way.

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Mz
I bet that the 0.5% of the population that are homeless are found almost
entirely in the bottom 20%. This would mean they are about 2.5% of that group.

And it may be higher, depending on the definition of _homeless_ being used.
Most people think of street people as The Homeless, but social workers, et al,
also consider many other people to be homeless. They are often counted among
_the hidden homeless._ These include people who are couch surfing, living with
relatives temporarily to avoid being out in the street, people in temporary
shelters and people in substandard housing considered unfit for human
habitation.

~~~
microcolonel
> I bet that the 0.5% of the population that are homeless are found almost
> entirely in the bottom 20%. This would mean they are about 2.5% of that
> group.

Seems a bit obvious.

> And it may be higher, depending on the definition of homeless being used.
> Most people think of street people as The Homeless, but social workers, et
> al, also consider many other people to be homeless. They are often counted
> among the hidden homeless. These include people who are couch surfing,
> living with relatives temporarily to avoid being out in the street, people
> in temporary shelters and people in substandard housing considered unfit for
> human habitation.

> couch surfing

Couch surfing is (usually) not homelessness, I slept on people's couches when
I was trying to get out of my mom's house in the most expensive city in
Canada. I lived just fine, though. Couch surfing is not always great, but it
isn't homelessness.

> living with relatives temporarily to avoid being out in the street

Unless your relatives are abusive, I don't think living with relatives counts
as homeless either. If I were comfortable around my parents, I don't see why I
would've moved out yet, it'd be a waste of money.

> substandard housing considered unfit for human habitation

Substandard housing is tenuous, I've lived in places with a horribly leaky
roof, flaky electricity, and questionable structural integrity... but I don't
even think that quite counts as homeless. I guess it's closer. "Unfit" is ill-
defined, many houses that people would gladly have lived in in the 40s would
be considered "unfit" today, but I doubt these "unfit" homes are presenting an
overwhelming mortal danger like being homeless.

> temporary shelters

Temporary shelters I don't know about, I don't think they count people living
in camping tents (or other non-permanent tents) as housed.

~~~
Mz
[https://en.wikipedia.org/wiki/Homelessness](https://en.wikipedia.org/wiki/Homelessness)

 _The legal definition of homeless varies from country to country, or among
different jurisdictions in the same country or region.[2] The term homeless
may also include people whose primary night-time residence is in a homeless
shelter, a domestic violence shelter, long-term residence in a motel, a
vehicle, squatting, cardboard boxes, a tent city, tarpaulins, shanty town
structures made of discarded building materials or other ad hoc housing
situations. According to the UK homelessness charity Crisis, a home is not
just a physical space: it also provides roots, identity, security, a sense of
belonging and a place of emotional wellbeing.[3] American government homeless
enumeration studies[4][5] also include people who sleep in a public or private
place not designed for use as a regular sleeping accommodation for human
beings._

~~~
microcolonel
> The term homeless may also include people whose primary night-time residence
> is in a homeless shelter, a domestic violence shelter, long-term residence
> in a motel, a vehicle, squatting, cardboard boxes, a tent city, tarpaulins,
> shanty town structures made of discarded building materials or other ad hoc
> housing situations.

I fully accept this definition, I just don't consider staying with relatives
or friends, or in a degraded-but-serviceable house, to be homelessness, even
if you don't have any other decent choice.

I'm not ecstatic with my housing choices right now. I live in a ~7m² room with
no windows or ventilation, but that doesn't mean I'm anywhere near homeless.

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ubi
Pretty shocked that ~50% of the bottom 20% has a college degree. Would have
expected much lower

~~~
problems
I think there's a lot of negative economic exaggerations going on to promote
political views on either side. Paint a bleak picture that only your team can
solve.

Something something protectionism, something something basic income.

It all seems like junk to me.

~~~
Mikeb85
Except both are valid economic strategies for increasing income. Protectionism
reduces the labour pool, so demand is higher relative to supply, which
increases wages. Basic income increases wages by redistributing wealth.

The downside to protectionism is it makes it harder for firms to find workers.
The downside to basic income is that it's a massive expense to government,
would require higher taxes, and may reduce incentives for people to work
(which is why it's mostly being trotted out as a way for people to subsist
when automation potentially wipes out labour).

~~~
problems
I'm not saying there's no validity to either of them as strategies, just that
they're big differences from the way we operate today and there's nothing to
mandate their application except these politicized exaggerations.

I more mean the bleak pictures painted to gain these ideas favor are pretty
much junk in my opinion.

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jscud
Does the population considered for these graphs include people who are
retired? If you are living primarily off of savings, I imagine you would be
included in the bottom 20% bracket.

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grasshopperpurp
I'd be curious to see more specific breakdowns. There's a big difference
between someone around the 80th, 85th, and 90th percentile vs someone in the
top 1% or top 0.01%. I'd guess that for the very rich, they spend less than
20% of their income. If someone has better info, I welcome corrections.

The most significant implication seems to be that as more money flows to the
top, it is not being recirculated at the rate it would if it were still in the
hands of middle or low-income workers. This is not a moral judgement on the
especially rich (in this case). They're making more money than they can
reasonably spend, and even if they could spend more, it wouldn't be in their
best interest. As I understand it, though, this is not a good thing for the
economy.

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gonmf
I feel the labels are switched in this picture
[http://erikrood.com/Posts/renter_home_income.png](http://erikrood.com/Posts/renter_home_income.png)

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qwerty2020
ah, yep, good eye! will fix this evening when I get back to computer

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noobermin
Also, it looks like you say, "The bottom 60% of earners spend more than they
make in a given year." while the first figure seems to show the bottom 40% do
so.

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qwerty2020
Updated both, thanks.

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round_guy
I'm surprised to see over 50% of top 40% owns their home outright. Are people
paying off their home early or is this baby boomers who have lived in the same
home for 30 years? I would like to see the age breakdown of each segment.

As housing costs increase and rent payments continue to flow to the top,
inequality will continue to accelerate. Housing policy that promotes
affordability needs more attention and effort behind it.

~~~
thephyber
If you fought in WW2 and came back, there was a massive boom of affordable
housing across the nation. It grew in the 1950s and 1960s, when wages were
growing. Between those who bought 30+ years ago (and didn't refinance every 5
years) + those families who passed their real estate down in their
inheritance, I can easily see that being a large percentage of the population.

The fact that they are in the bottom 20% of _income_ seems less relevant. If
you are in/near retirement or simply underemployed, owning your home means you
have to work less to cover your costs.

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thephyber
Questions of clarity not addressed in this post (needs digging in the
underlying data):

* Is this individuals, individuals who work, or households? * Is this data self-reported or somehow collected and correlated by experts? * Does any of this data include people who don't file taxes? * What is the definition of the "college degree" category? Does this include the "college" category or degrees from non-accredited colleges/trade schools? * Does "income" represent all benefits or just paycheck? I'm under the impression that civil servants make little in paycheck, but their benefits are back-loaded with pensions and health benefits that aren't visible if just analyzing "income".

These all have a large impact on the data and could easily sway the impression
that the reader gets.

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KerrickStaley
> The bottom 40% of earners spend more than they make in a given year.

This stat presumably includes people who are retired, people who are
dependents (e.g. on a parent), and people who are on welfare. I don't think
you can conclude much without breaking that down further.

~~~
qwerty2020
Does not include dependents, groups into families. May include retirees though
I could not verify this either. (you're welcome to dig through the data linked
in the article yourself, let me know if you find anything). I think the
general point would still stand even excluding retirees, but agree that would
be a more telling cut of data.

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zetazzed
Or, the lowest 20% of earners according to CES under-report their income,
which may include tips and cash payments, so CES thinks they are overspending.

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TrickyRick
This is a fair point, but could 50% of their income really be tips and cash
payments? It seems high to me but I have no insight into how those things work
in the US.

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ceautery
When I delivered pizza, my tips were more than my paycheck.

~~~
TrickyRick
Wow, I never realized it was that bad

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copperred
Where is the divide illustrated? I see a spectrum across the population with
no clear dividing lines.

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pmiller2
Is this based on before or after tax income? I would assume after, but it
doesn't really say.

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qwerty2020
After tax income. If you dig through the data [1] you'll find that.

[1]
[https://www.bls.gov/cex/tables.htm#annual](https://www.bls.gov/cex/tables.htm#annual)

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Johnny555
How is it possible for so many people to overspend their income? Credit cards
will only tide you over for so long, and once you carry a large balance, it's
hard to get additional unsecured credit.

~~~
garethsprice
Despite claims to the contrary there's still a lot of economic mobility in the
US - just as most homeless people are homeless for a only short period of
time, many people will dip in and out of poverty throughout their lifetimes
and not that many are "chronically poor".

During the lean times, the temporarily poor may be cashing out savings and
401k (and taking huge penalties), burning through home equity lines of credit,
borrowing money from relatives, working under the table, etc.

eg. Have a 60k a year job, 40k a year expenses and over a couple of years save
up 20k in savings. Get laid off and your income goes down to 20k that year but
you're only able to cut your expenses to 30k. You drain half your savings,
spending 150% of your income that year. Next year, you're able to land a job
paying 65k and you can start building up your savings again.

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bcheung
So of the top 50% of income earners, half of them have their houses paid off
completely? That doesn't seem right.

~~~
ac29
Maybe these graphs will help:

Median Family Income:
[https://fred.stlouisfed.org/series/MSPNHSUS](https://fred.stlouisfed.org/series/MSPNHSUS)

Median Price of New Homes:
[https://fred.stlouisfed.org/series/MEFAINUSA672N](https://fred.stlouisfed.org/series/MEFAINUSA672N)

Comparing 1965 to 2015, in 1965 a new home cost less than half of what a
family earned in a year, in 2015 it cost 4 times annual earnings. Times have
changed. The crossover point, where median house prices exceeded median family
annual incomes didn't occur until the 1980s -- meaning people who bought
houses during that period or prior likely had little trouble servicing multi-
decade mortgages, or even paying them off early.

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jstewartmobile
Childhood: Imagining animals in the clouds. Adulthood: Finding axes to grind
in charts.

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noobermin
The title should probably be the title of the article here.

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sctb
Yes, thanks. We've updated the title from “The bottom 20% of earners outspend
income by 2x each year”.

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formula1
So that's the spending requirement for a reasonably comfortable life. Good to
know

