Society
Society

Rich And Poor Spend High Proportion On Luxuries

| by Jordan Smith

A study conducted by Deutsche Bank reveals that the richest Americans spend a larger proportion of their income on luxuries than poorer sections of the population.

While the researchers found that the poorest one fifth of households spent 40 percent of their income on luxury goods, that figure rose to 65 percent among the richest fifth, Market Watch reports.

Middle income households, comprised of the middle three fifths of income earners, spent half of their income on luxuries and the other half on necessities.

The study was based on spending habits from 1984 to 2014.

In 2014, the top fifth of earners made more than $134,300, while the bottom two fifths of earners made less than $47,300.

The division between rich and poor continues to be a topic of discussion among politicians, particularly following the release of the Republicans' health care reform bill in the Senate.

Speaking on CNN June 25, Ohio Gov. John Kasich, a Republican, stated that neither political party "particularly cares about helping poor people." He criticized politicians, saying that "instead of people just confessing their loyalty to one party of the other, maybe they ought to be confessing their loyalty to the country," according to the Boston Globe.

Luxuries were defined in the Deutsche Bank study as "goods or services consumed in greater proportions as a person's income increases," while necessities were defined as items which decline as a proportion of income as it increases.

Other research reported by Market Watch found that the richer a person is, the more likely they are to overspend on their credit cards. Eighty-six percent of Americans agreed that it was acceptable to go into credit card debt to pay for necessities or emergency purchases, but 87 percent stated they would be embarrassed to build up debt for unnecessary items.

According to the Federal Reserve, Americans have built up $1.01 trillion in revolving debt, most of which is on credit cards, Business Insider reported on June 29. This is the highest it has been since the 2008 economic crisis.

The 2016 U.S. Payment Study revealed that credit cards have become the preferred way to make payments, overtaking debit cards and cash. This was the first time credit cards had come out on top in the study's six-year history. It also found that the preference for credit cards increased in line with household income.

The report noted that the preference for credit cards among high income households was "likely driven by rewards accumulated for those purchases," Business Insider reported.

Over the past two fiscal quarters, credit card defaults have increased, prompting concerns that companies may have issued credit too freely.

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