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American Demographics Report

The Buying Patterns of Rich U.S. Households

Account for 41% of Consumer Spending but Only 18% Own Mortgage-free Homes

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LOS ANGELES (AdAge.com) -- Give credit to the rich: They make more, spend more -- and owe more.

The top 20% of U.S. households by income collectively spend more than the bottom 60% on goods and services,

The richest 20% of households, feeding on the rapidly escalating value of their homes, accounted for 41% of the increase in spending that brought the country out of the 2001 recession.


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according to data from the Bureau of Labor Statistics' 2004 Consumer Expenditure Survey, released late last year.

That means the top fifth of households do nearly 40% of the nation's consumer spending. In an economic recovery driven by consumer spending, the rich paid more than their share: These households accounted for 41% of the increase in spending from the recession year of 2001 through 2004, according to American Demographics' analysis.

Will spending pace continue?
There's no reason to believe the trend was any different in 2005. There is a question as to whether the pace of spending growth will continue in 2006, for spending is linked to the now-cooling housing market.

Up to this point, the rich bet the house money and won big. Most households (91%) in the top fifth are homeowners, but just 18% own their homes outright. That's a lower percentage of mortgage-free homeownership than for any other group.

Those McMansions take a lot of care and feeding. In 2004, the top fifth accounted for 48% of mortgage payments. They had enough cash (or credit) left over to buy 48% of furniture, 38% of big appliances and 33% of consumer electronics.

The upper-income set have an urge to splurge on virtually everything. They accounted for 57% of consumer spending on "other lodging" (including hotels and vacation homes); 51% of fees and admissions (sporting events, movies, concerts, club dues); 40% of apparel; 39% of newspapers, magazines and books; and 38% of restaurant spending.

Consumer vehicle sales
The rich drove 44% of spending on new cars and trucks in 2004. As with houses, it's largely borrowed money. The top fifth paid more than one-third (36%) of interest on car loans and nearly half (48%) of lease payments and other vehicle charges.

In a government survey that covered everything from shoes to booze, the top 20% spent less than their share in just two categories: rent (they own) and tobacco (they are mostly white and college-educated, groups least likely to smoke).

Average after-tax income for households in the top fifth (about $125,000) in 2004 was more than twice the national average ($52,000), and their average spending on goods and services ($84,000) was nearly double the average ($43,000).

Most income groups actually are holding their own on spending. Households in the second-highest quintile did 23.5% in 2004, little changed from 1984 (23.2%); the next rung down held at around 17%; the second group from the bottom went from 12.7% to 12.6%.

Bottom 20%
So who lost? The poor, who have the least education and biggest obstacles to real income gains. It shows: The bottom 20% of households saw their share of spending fall from 9.6% in 1984 to 8.2% in 2004. That's a 1.4 point drop -- exactly what the top group gained over that period.

No big deal? Yes, big deal: 1.4 points translate to $70 billion in spending in 2004, or an extra $3,000 for each rich household. In 1984, a top 20% household did 3.8 times the spending of a bottom-fifth family; in 2001, the multiple was 4.1. By 2004, those at the top did 4.7 times the spending of those stuck at the bottom.

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