U.S. household spending gap highlights pressure on lower-income consumers

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U.S. household spending gap

Highlights

Households in the highest 20% by income average $264,510 annually versus $16,658 for the lowest 20%, spending 38 times more on personal insurance and pensions.
Federal Reserve Bank of Philadelphia survey finds 28% of lower-income Americans cite shifts in employment or household size as a main factor in adjusting 2024 spending, with nearly 50% impacted by cost of goods and services.
AAA reports U.S. average gas price rising from $3 to $4 in a month, intensifying pressure on lower- and middle-income household budgets and widening the spending gap.

2024 spending patterns by income group

The Bureau of Labor Statistics says households in the highest 20% of income before taxes make an average of $264,510, compared with $16,658 for the lowest-income quintile. In 2024, the top 20% spend about three times as much on housing as the bottom 20%, around 38 times as much on personal insurance and pensions, and about five times as much on transportation. Although higher-income households spend far more in dollar terms on housing, that category accounts for a smaller share of their total outlays than it does for lower-income households.Lower-income households devote slightly more of their spending to food and healthcare, reflecting tighter budget constraints as everyday costs accumulate. The article describes a K-shaped U.S. economy, in which higher earners fare better than lower-income groups and continue to underpin overall consumer spending. That split leaves lower-income Americans more exposed to changes in wages, employment and essential living costs.

Cost pressures weigh on consumer demand outlook

A survey from the Consumer Finance Institute at the Federal Reserve Bank of Philadelphia in October finds that Americans earning less than $40,000 are more likely to deliberately cut spending than those making at least $150,000. Around 28% of respondents in the lower-income group say changes in circumstances such as employment or household size are the main reason shaping their spending approach. Just under half say the cost of goods and services is influencing how they manage their budgets.The softer job market is affecting a broad range of workers, but the article says lower-income Americans could be hit harder because job gains are not broad-based. Atsi Sheth, chief credit officer at Moody's Ratings, says in a statement that slower job and wage growth, combined with several years of rising living costs, is already weighing on lower-income consumers as 2026 begins. She says the Middle East conflict could push up energy and food prices further, reducing purchasing power and leading to cutbacks in discretionary categories such as travel and entertainment.

Higher earners still face risks from market swings

Analysts say upper-income households are not insulated from economic headwinds, even if they have remained more resilient so far. Sheth says stronger financial asset prices have helped support higher-income households, but adds that market volatility could damage sentiment and slow the pace of spending growth. That suggests a key support for U.S. consumption could weaken if financial conditions deteriorate.Mark Hamrick, senior economic analyst at Bankrate, tells Business Insider in early March that an oil shock could force lower- and middle-income households to direct more money toward gasoline. AAA data shows the national average gas price on Monday is about $4, up from about $3 a month earlier. Rising fuel costs could therefore intensify the divide in spending power between income groups.

We previously reported on Americans increasingly reconsidering 2026 summer travel plans as higher fuel costs, geopolitical tensions and broader household expenses complicate budgets. That report highlighted softer bookings to major European cities and a shift toward staycations and shorter domestic trips as travelers prioritize affordability and flexibility.

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