Wealth Inequality Might Be Hurting Families’ Retail Budgets

This year more than most, bombastic speeches about wealth inequality and the shrinking middle class seem more like rhetorical props than actual issues in the real world. More often than not, the discussions revolve around economic redistribution as some kind of zero-sum game between the haves and have-nots — the side with the most money is the side that wins.

However, new data from the Pew Charitable Trusts might give credence to a more egalitarian opinion: the more wealth is shared, the more consumers have to spend on the businesses that need their money.

The findings come from a report on the recent historical fluctuations to American families’ budgets from the mid-90s to today, enough time to see not just how American families are allocating their incomes for necessary and leisure expenditures, but also how those elements have changed over time. For example, Pew found that before the recession, the median American family’s expenditures totaled about $36,000 — and it wasn’t until 2014 that those expenditures reached their pre-recession levels.

However, while that data might suggest that American families started spending more again because they also regained the financial means to do so, Pew found just the opposite. While expenditures may have returned to pre-recessions levels, family income had not. Median household incomes rose by just 1.5 percent from 2004 to 2008, but fell by 13 percent over the next six years; at the same time, family expenditures spiked by 14 percent.

In fact, Pew identifies this inverse relationship between money taken in and money given out, which hasn’t been this dramatic since 1996, as “a clear indication of why and how households feel financially strained.”

It’s all well and good to have concrete data to back up often hollow financial predictions, but how do those feelings of financial strain manifest themselves in consumer spending habits? If the data is to be believed, families’ choices of how to enjoy their discretionary income in the retail wonderland of America is increasingly being scaled back by higher costs on necessary purchases. For almost every family, costs related to housing, food and health care have increased proportionally to income since 1996, with the most severe increases occurring in the last two or three years. Housing costs, in particular, have spiked from about 20 percent to 25 percent of families’ household incomes since 2013.

The picture is even more dire for families on the lower end of the income spectrum. Housing costs now consume 50 percent more of these families’ annual budgets (compared to 1996), and transportation also eats up 7 percent more of their wallets (up to 15.7 percent in 2014 from just 8.8 percent in 2009).

If the math isn’t clear enough already, Pew spells it out: Median American families simply have less money left over after the bills are paid to spend on much of anything else. In fact, just about every part of the country has felt some hurt – the upper third in income has about $11,000 less than they did in 2004, the middle third has $12,000 less and the lower third has lost $3,000 – an amount that actually puts median families in the demographic into the red.

“[American families] have less slack in their budget,” Erin Currier, direct of the financial security and mobility project at the Pew Charitable Trusts, told CNN. “That’s a challenge to their being able to put any money aside for savings or to build wealth.”

If the median American family soon finds itself unable to fill its rainy day jar with even a few spare coins, retailers will be hard pressed to find many willing to shell out for many of the things they do today. Sure, the top percentiles will be able to prop up a few luxury brands, but those that depend on middle class dollars will need to find alternate sources of income if they, like their consumers, hope to survive.