THIS YEAR, Americans will spend $12 trillion
on stuff, slightly more than the $11.7 trillion
they spent in 2013. What we spend our money
on can tell us how optimistic we’re feeling, what
our consumer preferences are, and where we
might be headed.
Abraham Maslow (remember him from Psychology 101?) created the hierarchy of needs,
theorizing that self-actualization is not possible until basic needs are met. Using a pyramid as a model, physiological needs (shelter,
food, and clothing) are at the base. At the top,
creativity and artistic pursuits are defined as
Looking at trends in consumer spending through a redefined
prism of Maslow’s hierarchy reveals some interesting patterns.
LEVEL 1: Food, Clothing, Shelter (Basic Needs)
Home is still where the heart is—at least the heart of nondiscretionary spending. Spending on housing, which totaled an
annualized $2 trillion as of June 2014, has been growing much
faster than groceries and apparel, whose totals were $900 billion
and $367 billion, respectively. Much of this increase has been due
to tightened supplies of rental properties and energy costs, which
have driven up monthly housing and utility costs. Despite lower
interest rates, home purchases have been as spotty as job market
recovery, resulting in an increased demand for homes to rent.
Although food prices have risen for categories like meat and
dairy, large supermarket chains’ race for market share has kept
inflation to a minimum and allowed consumers to take advantage
of loss-leader bargains. In both apparel and groceries, showroom-ing has enabled price transparency across competitive retailers.
Although spending on housing rose by 4% recently, slightly ahead
of the total spending increase of 3.7%, spending on groceries rose
by less than 2% and apparel spending edged up by less than 1%.
Americans are spending more on housing because they must, and
taking advantage of the promotional environment in apparel and
food because they can.
LEVEL 2: Health and Well-being (Safety)
Healthcare spending is the next level up on our redefined hierarchy
of needs. Consumption of pharmaceuticals has skyrocketed as mil-
lions of formerly uninsured people got coverage under the Afford-
able Care Act and began to take medications, causing windfalls
for Big Pharma companies and major drugstore chains. However,
spending on medical services and other forms of healthcare has
grown by just over 3% as hospitals, clinics, and physicians find their
ability to bill patients limited under the legisla-
tion. More people are going to doctors, but total
spending is being offset by the declining average
cost of a doctor visit.
LEVEL 3: Quality of Life Connections
A little higher up on the hierarchy of values are
feel-good, big-ticket items. The auto industry has
benefited in the past year by the unleashing of
pent-up demand. During the recession, car sales
declined because people decided they would just
make do with their old clunkers. Once the economy started to grow again and employment and
income started to recover, millions purchased
new cars. However, that growth started to slow
considerably before picking up again this year.
Although new car sales are strong, they’re not
growing as much as they were in early 2013.
Growth of mobile device contracts is an annualized 4%, but off
from the higher levels seen in 2013, primarily because the tablet
craze has quieted considerably.
Growth in furniture and appliance spending, representing a total
of $287 billion, remains sluggish despite the improved stability in
the housing market. In the marketplace, prices have been declining,
and consumers are taking advantage of available deals.
LEVEL 4: Having Fun (Esteem)
Near the top of the spending pyramid reside some of the most discretionary purchase categories. Key categories include recreational
activities spending ($450 billion), products like toys and sporting
goods ($367 billion), and spending on food outside the home ($746
billion). Of the three, eating out is the only one with accelerating
growth. It reflects confidence and achievement that consumers
can reward themselves with a more expensive option than cooking
LEVEL 5: Self-Improvement (Self-Actualization)
At the pinnacle of the spending categories are the self-actualized
pursuits of education and financial planning. Education spending, at $282 billion, is one of the fastest-growing categories in consumer spending. And with the volatility of the financial markets,
spending on financial services is growing quickly, at an annualized $890 million. This would suggest that we are optimistic about
the future, interested in self-improvement, and searching for,
and funding, solutions.
Judith Russell, an analyst with The Robin Report, is a marketing
and strategic planning consultant specializing in the apparel industry,
and writes for several apparel and retail trade publications.
The hidden message in
how Americans spend
marketing and strategic