How Much Does the Average American Spend

Wherein we try and make ourselves feel better about our levels of spending

Our straw-men for the day

As a result of laying out exactly how much we spent last year, we’ve decided we can improve where and how we spend our money. To put a more positive spin on it, I thought I’d examine the spending of the “Average American” and see how we compare.

We’ll do that, by consulting the Consumer Expenditure Survey, put together by our friends at the Bureau of Labor Statistics (BLS). The latest data available at the time of writing gives details on consumer spending for 2013.

A Tale of Two Average Consumer Units

Fun fact: In 1960, the average man weighed 166 pounds; today, the average man weighs 194 pounds.


Let’s look at the household spending of two different American consumers, who we’ll name The Average Joe and Joe the Plumber:

The Average Joe represents the average over all the consumer units studied. The Average Joe lives in a household of 2.5 people, with 1.3 earners and supports 0.6 children under 18. (They also happen to have 1.9 vehicles, and looking at their expenses I get the sinking feeling they aren’t talking about efficient ones).

Joe the Plumber represents the average over the 20% of households with the highest incomes (Congratulations, Joe! You’re rich). This is a household of 3.2 people, with 2.1 earners, and 0.8 children under 18. (And of course 2.8 vehicles! At this point I had to look it up and confirm: they aren’t talking about bicycles)

Annual Income and Spending for Two Different Average American Households

Average Joe Joe The Plumber
After Tax Income $56,352 $134,044
Total Expenses $51,100 $99,237

It’s obvious from the data, and the summary above, that as people earn more money they spend more money, and in roughly fixed proportions: For example, no matter how much money someone earns, half their spending goes to housing and transportation. Is there a difference in the basic needs for housing, transportation, and food of people who make different amounts of money? Probably not. It’s lifestyle inflation.

A more detailed breakdown of how exactly these Average Americans spent their money is presented below. For comparison purposes, I took our own spending in 2014 and adjusted it as I thought reasonable to fit the categories used in the survey (for example, the BLS counts spending on pets as entertainment.. I guess I can see that? ).

Expense Breakdown by Category

Average Joe Joe The Plumber Freedom35 Household
Housing 17,148 30,901 34,740
Transportation 9,004 16,860 1,920
Food at Home 3,977 6,058 3,600
Dining and Take Out 2,625 5,125 1,320
Entertainment 2,482 5,133 1,320
Clothing / Apparel 1,604 3,056 100
Healthcare 3,631 5,755 4,980
Other 10,630 26,350

If you are a personal finance or data geek (and would you be reading this if you weren’t?), it’s a worthwhile activity to examine your own spending and see how it compares to the Average American. I’ll leave that as an exercise to the reader…

Some minor technical asides:

  1. The Other category is a little odd, as the BLS lumps pension and Social Security contributions in there, making it rather large (I ignored it for our comparison purposes). I think most people would rightfully count Social Security contributions as a tax, rather than a personal expense, since it comes off their paycheck whether they like it or not and they have little say in the matter.
  2. Similarly, the Healthcare category includes insurance premiums. This is maybe a more legitimate expense that you have some ability to control or cancel, but I think most people in the US health care system would ignore this if they have employer provided insurance as the money disappears automatically from their paycheck and is mostly controlled by their employers.  For the sake of comparison I added our insurance premiums back in to fill out the table above.

Anyways, what is obvious is this: The average American spends most of their money on the big three of housing, transportation and food. They also spend a lot of money on clothing and entertaining themselves. (As a digression, I’m all for entertaining yourself in a multitude of ways, but in a world where we manufacture and destroy perfectly good clothing because we have such a surplus, I find it borderline morally objectionable to participate in bringing large amounts of new clothing into the world, but to each their own.)

So what does all this have to do with Financial Independence and Early Retirement?

If you want to retire early, or just achieve financial independence, it’s all about the spending. Making a few ad hoc corrections to the numbers (removing social security contributions for example), we can calculate the savings rate for the Average Joe and Joe the Plumber as 11% and 30% respectively. Now these numbers aren’t too bad by some comparisons (and makes me wonder if I did the calculation right), but does that mean they can retire early if they wanted to?

By applying some assumptions and doing some shockingly simple math, we can turn savings rate directly into the number of years until they can retire: The Average Joe has 50 years until retirement, and Joe The Plumber has almost 30 more years.  (When you look at it this way the forced social security contributions might not seem so bad, assuming you don’t want to see the return of breadlines).

On the other hand, let’s say Joe the Plumber maintains his level of income, but decides he can spend like The Average Joe. Keep in mind, The Average Joe is the average consumer in one of the richest societies in history, and so presumably has a pretty comfortable life, so this shouldn’t be a big sacrifice. In that case, Joe the Plumber will have boosted his savings rate to over 57% and can retire in 13 or 14 years. Imagine that, he could be doing whatever he wants and not worrying about haranguing politicians about taxes, everyone wins, that’s Freedom 35!

Similarly, if the Average Joe keeps his income the same, but lowers his expenses to match the spending of an American who makes less money, but probably also lives a very comfortable life by global standards, he could if he wanted achieve financial independence and not worry about spending time and money maintaining 1.9 vehicles.

And so ends the tale of our two average American consumers, both now hopefully having reduced their spending and enjoying a nice bike ride or hike in the woods during their extended early retirement.

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