Who are the discretionary spenders?

Who are the discretionary spenders? One way to understand them is to look at their age; they are younger than you may think. Householders aged 35 to 44 have the highest average discretionary income -- $28,083. That’s in part because many of the youngest in that age group are still single and renting. Marriage, having children, and owning a home clearly impact discretionary spending. Nevertheless, householders aged 45 to 54 and 55 to 64 are not far behind with $27,846 and $26,204, respectively, in average discretionary dollars. Typically, incomes rise with age and work experience while higher cost homes take up some of the slack. Having fun with a few extra dollars seems to follow its own life-course roller coaster. But once the home mortgage is paid off, even a relatively lower retirement income can refresh the discretionary kitty.

Earlier calculations of discretionary income by TGE Demographics (See The Official Guide to American Incomes) show the age group 45 to 54 with the highest average household income. The Conference Board in 2002 showed the age group 55 to 64 with the highest average. What seems to be happening is that even though incomes rise, peak, and fall back through those three age groups, trends in basic expenses and rising debt levels have an impact on discretionary dollars over time.

Geographically, discretionary dollars are flowing in and around the nation’s capital and the down the East coast corridor from Boston to Washington. For example, the top-ten states with the highest average discretionary income per household are: District of Columbia, Connecticut, New Jersey, Maryland, Massachusetts, Virginia, Alaska, California, Hawaii, and New York. Arguably, high cost-of-living states can sap discretionary dollars back into “basic” expenses. But the presence of discretionary dollars can also drive up costs. The typical household in these top ten states, as in all states, has to balance discretion with prudence. Still, product and services marketers who cater to discretionary spenders with the deepest pockets will find opportunity in those top-ten states. (Get the full list of states ranked by average discretionary income here.)

Discretionary income is what’s left after paying taxes and buying food, clothing, shelter, transportation, and healthcare. Also subtracted is 25 percent of spending that accounts for particular “necessities” like, for example, tools for work, child care, or a new refrigerator that are necessary for some but not for all households in a given year. By the way, “food” is food consumed at home, jewelry does not count as clothing, second homes do not count as shelter, and, as has been said before, that flight to Aruba does not count as transportation.

Tom ExterComment