Tuesday, July 14, 2009

Where Does the Money Go?

Mark Perry at Carpe Diem provides a link to an interesting graphic. (Click on the link he provides to go to source. Click on the image to get a larger jpg file.) It's based on data from the Bureau of Labor Statistics, and it shows how an average family's income is allocated.

It provides some insights into what we spend our money on, and can provide a springboard for discussion on budgeting in a personal finance class, but also how we measure inflation. I suggest the latter is a possibility because the segments seem to match (quite closely) the major categories of the Consumer Price Index (CPI) market-basket that was in this graphic in The New York Times in May of 2008.

The NY Times piece is more detailed, breaking down the categories into specific items. That breakdown may actually explain the differences between the categories of the two graphics. Because the CPI is a month-to-month measure, it needs to measure the same things the same way. The same items purchased at the same source.

But because we don't shop that way, our basket can differ and frequently does. We look for substitutes, and we may even change where we buy what we buy. But the categories in both graphics are still useful. They can be used as a basis for a budgeting exercise, but also to discuss what could be changed.

I'd be interested to hear your thoughts on the usefulness of these two graphics for the classroom.

This post references the following Keystone Economic Principles:
1. We all make choices.
2. There ain't no such thing as a free lunch.

9. Prices are determined by the market forces of supply and demand… and are constantly changing.


Matt Young said...

A useless graph that excludes government goods and services.

Tim Schilling said...

It does indicate that the graphic is based on after-tax income.

How would you value or divide the tax payments based on services/goods received from the government other than as a general category. And isn't that accomplished by the "after tax" statement?