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  Chapter Nine:
 
MONEY
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  Average Earnings
  Minority Earnings
  Average Incomes
  Personal Consumption
  Philanthropic Donations
  Personal Debt
  Income Distribution
  Poverty
  Inflation

  

 

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MONEY

Personal Consumption

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As real incomes increased during the century, Americans spent smaller shares of their incomes on food and clothing, but larger shares on medical care and transportation.
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Engel’s Law, proposed in the 1857 by German economist Ernst Engel after he studied the budgets of Belgian families, states that the lower a family’s income, the higher the proportion spent on food, and vice versa. 

As the charts show, Engel’s Law remains valid. The families surveyed in 1901 spent nearly half of their incomes on food. As family income grew, that proportion declined steadily until 1997, when food accounted for only a sixth of personal consumption expenditures. The share of income spent on clothing also declined regularly. The share devoted to transportation increased sixfold from 1901 to 1950 and remained at that level through the end of the century. 

The share of expenses dedicated to having and maintaining a home remained remarkably constant over the century, while the average residential space per person soared upward (see page 94). Household operations include light, heat, gas, electricity, and telephone bills, together with furniture, appliances, and cleaning materials. 

Medical care costs were so small in 1901 that they were included in the “sundries” category in questionnaires. The share of personal consumption expenditures devoted to health care doubled from 1929 to 1970 and then doubled again from 1970 to 1997. The residual category is of particular interest. It includes a wide variety of elective expenditures, from life insurance premiums to football tickets, church collections, and foreign travel. These discretionary expenditures probably have a greater effect on satisfaction with one’s economic situation than the absolute level of income.


Chapter 9 chart 4

Source Notes
Source Abbreviations

HS series G 460–469 and G 495–563; SA 1999, table 729. For a review of Ernst Engel’s famous law, see H. S. Houthakker, “An International Comparison of Household Expenditure Patterns, Commemorating the Centenary of Engel’s Law,” Econometrika 25 (October 1957):532–551.

 

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