More Americans Have Discretionary Income
Kurt Brouwer November 12th, 2007
This is an interesting report from The Conference Board, which is best-known for its Consumer Confidence Index and its Index of Leading Economic Indicators [emphasis added]:
More Americans Have Discretionary Income (The Conference Board, November 8, 2007, Lynn Franco)
‘About 73 million U.S. households now have discretionary income, up from about 57 million in 2002, according to a report by The Conference Board. The percent of the U.S. population with discretionary income has increased to nearly 64 percent, up from 52 percent in 2002.
Total discretionary income in the U.S. topped $1.7 trillion in 2006, with the household average at $24,335. Per capita income stood at $9,148.
Nearly 78 percent of all discretionary income is held by households earning more than $100,000. Average discretionary income for this segment, $66,451, is 2.7 times the national average.
Households with discretionary income, as defined by the study, are those whose spendable income exceeds that held by households with similar demographic features…’
Based on the results of this survey, we can begin to understand why consumer spending has been strong for so long. When people have more discretionary income, they are likely to spend some of that income and that helps fuel the economic growth we have seen.
It was not surprising that higher income households have most of the discretionary income. On the contrary, it was surprising to me how many households do have such income. For example, in New England 63% of households do. The report continues:
‘…Top Regions
The region with the wealthiest concentration of households is New England (including Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island and Vermont). About 63 percent of households have discretionary income, with an average amount of $27,337.
Household discretionary income is lowest in the West North Central region (including Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota). Average household discretionary income in this region is $20,749.
Other findings:
- In terms of generations, baby boomers (born between 1946-1964) represent the largest group, with 43.7 million households. More than two-thirds have discretionary income. This segment has the highest average discretionary income, at $29,754. Generation X (born between 1965-1981) is the second largest group, with 34 million households. Slightly less than two-thirds have discretionary income. This segment has the second highest average discretionary income, at $22,562…’
I would not have guessed that New England is the region with the highest average discretionary income nor would I have guessed that the West North Central Region (Midwest) would have the lowest. As they say in the NFL, that’s why they play the game. In this case, that’s why they did the study.
On one point, my instincts were on track. It makes sense that baby boomers have the highest average discretionary income because boomers are well into their careers and , in many cases, are at the peak of their earning power.
Though I have not seen the longer term statistics on discretionary income, I suspect it has been a rising trend for many years and that is a good thing in my opinion.
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