When we talk about growing income and wealth inequality in America (and the figures are undeniable), we assume these growing gaps are reflected in people’s actual spending habits. It stands to reason that if people are earning less or more, their spending will follow. But that’s not necessarily the case. People could hoard their income, or they could top it up with public assistance, clouding the inequality picture.
Economists have long wondered if income differences translate into consumption differences and now we have a good sense of what’s happening in the country. An analysis by the JPMorgan Chase Institute, based on 12.4 billion anonymized credit and debit card transactions, shows where top earners spend the most and least, and what real inequality looks like on the ground.
The top 20% of earners in the San Francisco area spend the most: 35.9% of overall consumption in the city. The New York area comes next (33.2%), with the Houston area third (30.4%). Out of 15 metropolitan areas, Phoenix and Portland are at the bottom of the list. In each case, the top quintile of earners actually spends less than the bottom 20%, suggesting top earners there are saving rather than splurging.
At the other end of the income scale, San Francisco and New York had the lowest rate of spending among the bottom 20%: 8% and 12.2% respectively. In the Bay Area, therefore, the top 20% accounts for roughly 25% more spending than the bottom 20%, a massive gap. (To qualify for the top-quintile in San Francisco, you need to make $167,800 a year).
Atlanta, San Francisco, and Boston have the widest income inequality among major U.S. cities, according to the Brookings Institution. In San Francisco, the top-5% make an average of $423,000 a year, while the poorest 20% earn about $24,000.
Aside from inequality, the JPMorgan Chase Institute also reveals that spending increases are dragging in major cities, despite a general uptick in economic growth (see an interactive map here). Across the 15 cities, spending growth fell from 5% in the second quarter of 2014 to 0.5% in the same quarter of 2015. For whatever reason, rich or poor, people aren’t spending as much as we might expect.