Savings

Family spending is stretching budgets

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If you think it's costing you more to run your household, you are onto something.

Household spending has risen 25 percent or more in the past two decades, even adjusting for inflation, yet incomes have not followed suit. And that means more families are stretching to make ends meet, according to research by the Pew Charitable Trusts.

And the big spending culprits are not extras like a third laptop or a giant TV. It's core expenses like housing and transportation, Pew found.

That has important implications for families' future financial prospects, said Erin Currier, director of financial security and mobility at Pew.

"It underscores how little slack families have in their budgets for mobility-enhancing investments like education, even liquid savings, any kind of wealth building," she said.

The Great Recession caused both household income and household spending to contract, the study found. But spending has picked up since then, increasing almost 14 percent from 2004 to 2014, while incomes contracted 13 percent over that decade.

"Expenditures really recovered from the recession, but incomes really did not," Currier said.

Embedded in the spending increase were several disturbing trends. Housing, food, health-care and transportation costs all consume a larger share of family budgets now than they did in 1996, while outlays on pets and entertainment as a percentage of overall expenditures have barely changed.

Increased costs for necessities is particularly hard on lower-income families since they have less financial flexibility, and lower-income renters spent almost half of their income on rent in 2014, Currier said.

But all families now have less leeway in their budgets, with expenditures equal to 75 percent of household income in 2014, up from 71 percent in 1996.

"Families do not have a cushion," Currier said. "They don't have savings or wealth that they really need in order to weather emergencies and to promote their own economic mobility, especially their wealth mobility."

Previous Pew research found that one in three American families overall have no savings. And even among households with incomes of over $100,000, 1 in 10 say they are in that situation.

Pew did not examine household debt, so it is uncertain how families are continuing to cover these increased costs. What is clear, according to the study, is that lower-income families are now spending more than the income they have coming in.

A typical household in the lower third of incomes had just over $1,400 left after expenditures as of 2004, Pew found. But by 2014, a household in that income bracket had negative $2,300 at the end of the year.

Not only that, the study was based on pretax income, so "some families will have had even less slack in their budgets than this figure implies," the researchers said.

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Lower-income families are more likely to receive financial help from family and friends, according to earlier Pew research, and that could explain how they are getting by.

However, the assistance these low-income families get may be simply a lifeline to make ends meet and cover a bill left outstanding at the end of the month, rather than create a leg up in financial mobility. Of the adults in that Pew research who reported getting help with education costs or a down payment on a house, more than half were raised in wealthier households.

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If economic growth picks up, it could push household incomes back to a level where families feel less squeezed and are better able to save for the future. But for now, less affluent households are increasingly at risk of serious financial problems, Currier said.

"Lower-income families, because they are spending so much on core needs, are absolutely in a precarious position that is contributing to the overall wealth gap," she said.