Factors that Go into Making up a Given Household Budget - Research Paper Example

?Table of Contents Executive Summary 2 Descriptive Statistics 3 Table Average Annual Expenditures by Housing Tenure and Geographic Area 4 Chart Scatterplot for Overall Expenses by Gas, Alcohol and Healthcare 5 Hypothesis and Methods 5 Table 2. Correlative Statistics 6 Pricing Conclusions 6 References 7 Appendix 1. Consumer Expenditure Database 8 Appendix 2 Predicted/actual values for independent and dependent variables 12 Summary The following is a report to management regarding factors that go into making up a given household budget. By developing a rule of thumb measure, as reported within these pages, it is expected that estimation of total family expenditures will be made easier to calculate. The report includes variables which are determined to have a role in overall budgets and include both “necessary” and “optional” expenses. In order to develop a useful figure that is simple to estimate using readily available data, data provided in the Consumer Expenditure Survey conducted by the Bureau of Labor Statistics was considered. Households in variety of living situations and geographical areas were considered in order to properly represent different types of consumers and budgets. The data for household expenses as measured by housing tenure and area type was focused upon. This data reflected the annual expenses of consumers who owned and rented in a variety of contexts, as well as those who dwelled in urban, suburban, and rural community settings. The number of relevant variables which go into determining total household expenditures was defined down to the lowest number possible while still affording strong predictive accuracy. Because healthcare expenses are a primary focus of recent public debate, it was decided that healthcare dollars spent would constitute at least one of the primary independent variables. Two others were chosen, the amount of money expended on gasoline and the amount of money expended on alcohol. The general feeling was that gas expenses impact other costs such as food in a roughly correlative fashion, and that alcohol served as a proxy for expendable income that was believed to be a stronger measure than other alternative factors such as entertainment. This is because it is more pervasive in the various community types considered. (There may be few entertainment options, for example, available in some rural communities, but alcohol will be available everywhere.) Given these three independent variables, it was expected that one could quickly predict the amount of household money available for expenses. One important note: it may be asked why housing expenses were not taken into account. It was felt that with the current difficulties in the housing market, the turbulence in using such a measure may not yield fully predictive results. The expenses in gas, alcohol, and healthcare were believed to be more stable measures of household expenses at present; therefore, they were the variables chosen to predict overall household budgets. Ultimately upon determining a useful estimate of overall family budgets, the researchers will offer conclusions regarding the basic importance of each variable to family budgeting and suggest directions for pricing considerations. Descriptive statistics Table 1 presents the descriptive findings. As can be seen from a review of the table, there were a variety of family budget levels in the survey, ranging from a low of less than $34,000 for renters to a high of almost $65,000 for owners with mortgages, and a low of just over $41,000 for rural consumers to a high of over $52,000 for urban/suburban. The range of expenses concerning the independent variables varied considerably depending on housing situation and the community type. Interestingly, it appeared that rural and inner city communities sometimes varied with urban/suburban communities and sometimes went in the opposite direction For example, the inner city correlated roughly with urban/suburban consumners regarding alcohol consumption while it varied on healthcare, and the rural communities moved in exactly the opposite fashion. Table 1. Average Annual Expenditures by Housing Tenure and Geographic Area Source: US Bureau of Labor Statistics (2009) In order to determine whether increases in the independent variables correlated with increases as the overall budget of families, which is the expected outcome, scatterplots were generated. Chart 1 shows the result. Chart 1. Scatterplot for Overall Expenses by Gas, Alcohol and Healthcare It does appear that increases in the relevant independent variables related to increases in overall expenses. From reviewing the chart, healthcare itself seems to vary most, as gasoline and alcohol consumption move in almost a direct linear fashion to the overall budget expenses. This may indicate that healthcare is priced with less concern for demand than the other variables. In order to test the relationships more closely, correlational statistics were computed. Hypothesis and Methods The researcher hypothesized that as the three independent variables increased, overall expenses would also increase. The Null Hypothesis, therefore was as follows: There will be no significant relationship between increases in the independent variables (gas, alcohol, and healthcare) and an increase in the dependent variable (overall expenses). The expense figures for each relevant variable were determined by consultation of the USBLS database. Multiple regression analysis was conducted using Excel functions following Orme (2010). Findings are presented in Table 2 below: Table 2. Correlative Statistics As can be seen, the Multiple R and R-square coefficients are very strong (.099), with almost perfect predictive power, at a high statistical significance (F=1.959). The null hypothesis is rejected. As expected, by knowing the expenses on gas, alcohol and healthcare, one can predict overall family budgets very accurately. Interestingly, both gasoline and alcohol move very closely (in statistically significant ways) with overall budgets, whereas healthcare seems related but not fully predictive. Line plots presented in Appendix 2 support this. Pricing Conclusion Healthcare expenses move with the family budget, but not as closely as other important and essential variables. This may be due to pricing that isn’t in line with other economic factors. By lowering costs where possible, management can likely gain strong competitive advantages. References U.S Bureau of Labor Statistics. (2009). Curreent Expenditures, Housing Tenure and Type of Area. Retrieved from http://www.bls.gov/cex/#tables. Orme, B. (2010). Getting Started with Conjoint Analysis: Strategies for Product Design and Pricing Research. Second Edition, Madison, Wis.: Research Publishers LLC. Appendix 1. Consumer Expenditure Database Item All consumer units Housing tenure Type of area Homeowner Renter Urban Rural Total Home-owner with mortgage Home-owner without mortgage Total Central City Other Urban Number of consumer units (in thousands) 120,847 80,068 50,080 29,988 40,778 110,241 35,043 75,198 10,605     Consumer unit characteristics:       Income before taxes $62,857 $75,858 $88,237 $55,185 $37,329 $64,316 $55,385 $68,477 $47,692 Income after taxes $60,753 $73,035 $85,062 $52,949 $36,637 $62,164 $53,636 $66,138 $46,080 Age of reference person 49.4 53.3 47.8 62.5 41.7 49.0 46.6 50.1 53.7     Average number in consumer unit:   Persons 2.5 2.6 2.9 2.1 2.3 2.5 2.4 2.6 2.4 Children under 18 0.6 0.6 0.8 0.3 0.6 0.6 0.6 0.6 0.5 Persons 65 and over 0.3 0.4 0.2 0.7 0.2 0.3 0.3 0.3 0.4 Earners 1.3 1.4 1.6 0.9 1.1 1.3 1.2 1.3 1.2 Vehicles 2.0 2.4 2.5 2.2 1.2 1.9 1.5 2.1 2.6     Percent distribution:   Sex of reference person:   Male 47 48 49 45 46 48 46 48 42 Female 53 52 51 55 54 52 54 52 58     Housing tenure:   Homeowner 66 100 100 100 n.a. 65 50 72 82 With mortgage 41 63 100 n.a. n.a. 42 32 46 40 Without mortgage 25 37 n.a. 100 n.a. 23 17 26 42 Renter 34 n.a. n.a. n.a. 100 35 50 28 18     Race of reference person:   Black or African-American 12 8 9 8 20 13 20 9 7 White, Asian, and all other races 88 92 91 92 80 87 80 91 93     Hispanic or Latino origin of reference person:   Hispanic or Latino 12 9 10 7 17 13 17 11 3 Not Hispanic or Latino 88 91 90 93 83 87 83 89 97     Education of reference person:   Elementary (1-8) 5 4 3 7 6 4 5 4 8 High school (9-12) 34 32 27 40 39 34 33 34 44 College 61 64 70 53 55 62 62 62 47 Never attended and other a/ a/ a/ a/ a/ a/ a/ a/ a/     At least one vehicle owned or leased 88 96 98 93 74 88 79 92 94     Average annual expenditures $49,067 $57,047 $64,493 $44,130 $33,404 $49,807 $43,962 $52,501 $41,325     Food $6,372 $7,198 $7,682 $6,125 $4,753 $6,435 $5,922 $6,662 $5,675 Food at home $3,753 $4,214 $4,377 $3,837 $2,849 $3,757 $3,407 $3,911 $3,707 Cereals and bakery products $506 $566 $594 $501 $390 $508 $456 $530 $494 Cereals and cereal products $173 $186 $198 $158 $147 $174 $164 $178 $161 Bakery products $334 $380 $396 $343 $243 $334 $292 $352 $333 Meats, poultry, fish, and eggs $841 $932 $966 $852 $663 $844 $797 $865 $803 Beef $226 $252 $254 $246 $176 $225 $204 $234 $242 Pork $168 $187 $188 $185 $132 $167 $157 $172 $182 Other meats $114 $130 $134 $122 $81 $114 $101 $119 $111 Poultry $154 $165 $181 $127 $133 $157 $155 $157 $126 Fish and seafood $135 $151 $161 $128 $103 $138 $136 $139 $97 Eggs $44 $46 $47 $44 $39 $44 $43 $44 $45     Dairy products $406 $459 $478 $415 $302 $404 $360 $423 $429 Fresh milk and cream $144 $158 $164 $143 $117 $143 $132 $148 $153 Other dairy products $262 $301 $314 $272 $185 $261 $228 $275 $275 Fruits and vegetables $656 $744 $760 $704 $486 $658 $614 $677 $638 Fresh fruits $220 $252 $253 $251 $155 $221 $204 $228 $203 Fresh vegetables $209 $238 $246 $217 $153 $211 $201 $215 $193 Processed fruits $118 $131 $134 $123 $93 $119 $110 $123 $109 Processed vegetables $110 $123 $126 $114 $84 $108 $98 $112 $132 Other food at home $1,343 $1,514 $1,580 $1,366 $1,008 $1,343 $1,181 $1,414 $1,344 Sugar and other sweets $141 $164 $164 $162 $95 $139 $121 $148 $153 Fats and oils $102 $116 $117 $113 $76 $102 $93 $105 $111 Miscellaneous foods $715 $805 $842 $717 $540 $716 $623 $757 $701 Nonalcoholic beverages $337 $369 $388 $323 $274 $336 $301 $352 $340     Food prepared by consumer unit on out-of-town trips $49 $62 $69 $50 $22 $50 $42 $53 $39 Food away from home $2,619 $2,984 $3,306 $2,288 $1,904 $2,678 $2,515 $2,752 $1,968     Alcoholic beverages $435 $477 $525 $370 $352 $448 $458 $444 $289     Housing $16,895 $18,901 $22,846 $12,287 $12,958 $17,356 $16,058 $17,953 $12,110 Shelter $10,075 $10,733 $14,050 $5,193 $8,783 $10,483 $10,060 $10,681 $5,828 Owned dwellings $6,543 $9,761 $13,059 $4,254 $223 $6,731 $5,095 $7,493 $4,589 Mortgage interest and charges $3,594 $5,347 $8,455 $155 $152 $3,740 $2,874 $4,143 $2,076 Property taxes $1,811 $2,707 $3,002 $2,213 $52 $1,866 $1,305 $2,127 $1,242     Maintenance, repairs, insurance, other expenses $1,138 $1,708 $1,602 $1,885 $18 $1,125 $915 $1,223 $1,272 Rented dwellings $2,860 $60 $48 $80 $8,359 $3,063 $4,374 $2,452 $753 Other lodging $672 $912 $943 $859 $202 $690 $591 $736 $486     Utilities, fuels, and public services $3,645 $4,276 $4,554 $3,811 $2,406 $3,650 $3,245 $3,838 $3,592 Natural gas $483 $602 $642 $535 $250 $503 $466 $520 $280 Electricity $1,377 $1,600 $1,666 $1,489 $938 $1,365 $1,169 $1,456 $1,501 Fuel oil and other fuels $141 $192 $185 $205 $41 $118 $41 $155 $379 Telephone services $1,162 $1,263 $1,392 $1,047 $964 $1,166 $1,115 $1,190 $1,119 Water and other public services $481 $619 $669 $535 $211 $498 $455 $518 $312 Household operations $1,011 $1,217 $1,424 $873 $607 $1,056 $929 $1,116 $542 Personal services $389 $439 $602 $167 $292 $415 $374 $434 $123 Other household expenses $622 $778 $821 $707 $315 $641 $555 $682 $420     Housekeeping supplies $659 $804 $804 $803 $374 $652 $533 $704 $738 Laundry and cleaning supplies $156 $174 $177 $168 $120 $153 $131 $163 $184 Other household products $360 $452 $448 $461 $180 $358 $282 $391 $378 Postage and stationery $143 $178 $180 $174 $75 $140 $119 $149 $176 Household furnishings and equipment $1,506 $1,872 $2,015 $1,607 $788 $1,515 $1,292 $1,615 $1,409 Household textiles $124 $156 $160 $147 $62 $121 $94 $133 $160 Furniture $343 $404 $441 $347 $222 $350 $328 $360 $269 Floor coverings $30 $42 $49 $30 $7 $32 $21 $37 $14 Major appliances $194 $257 $265 $241 $70 $191 $155 $207 $227 Small appliances, miscellaneous housewares $93 $114 $123 $96 $53 $96 $89 $99 $69 Miscellaneous household equipment $721 $899 $976 $745 $372 $726 $604 $779 $671   Apparel and services $1,725 $1,857 $2,085 $1,371 $1,466 $1,762 $1,777 $1,755 $1,328 Men and boys $383 $412 $473 $279 $326 $384 $379 $386 $370 Men, 16 and over $304 $324 $366 $232 $265 $304 $314 $300 $304 Boys, 2 to 15 $79 $87 $108 $47 $61 $80 $66 $86 $66 Women and girls $678 $758 $844 $568 $522 $698 $703 $697 $459 Women, 16 and over $561 $627 $682 $499 $432 $578 $589 $572 $376 Girls, 2 to 15 $118 $132 $161 $69 $90 $121 $113 $124 $83 Children under 2 $91 $89 $106 $50 $96 $92 $95 $91 $79 Footwear $323 $329 $354 $270 $311 $327 $316 $331 $284 Other apparel products and services $249 $270 $307 $204 $210 $260 $283 $250 $136   Transportation $7,658 $9,089 $10,005 $7,568 $4,849 $7,623 $6,273 $8,249 $8,028 Vehicle purchases (net outlay) $2,657 $3,247 $3,554 $2,734 $1,499 $2,611 $1,950 $2,920 $3,130 Cars and trucks, new $1,297 $1,718 $1,800 $1,581 $471 $1,320 $963 $1,486 $1,061 Cars and trucks, used $1,304 $1,460 $1,670 $1,108 $999 $1,242 $953 $1,376 $1,952 Other vehicles $55 $69 $83 $45 $28 $50 $34 $57 b/ 117 Gasoline and motor oil $1,986 $2,276 $2,555 $1,809 $1,419 $1,964 $1,563 $2,151 $2,218 Other vehicle expenses $2,536 $3,023 $3,288 $2,589 $1,579 $2,545 $2,180 $2,711 $2,446 Vehicle finance charges $281 $326 $405 $195 $192 $276 $217 $304 $331 Maintenance and repairs $733 $862 $966 $687 $478 $735 $645 $776 $716 Vehicle insurance $1,075 $1,303 $1,286 $1,342 $629 $1,065 $917 $1,129 $1,191     Vehicle rental, leases, licenses, and other charges $447 $532 $632 $365 $279 $469 $401 $501 $209 Public transportation $479 $544 $608 $436 $353 $503 $580 $467 $234   Healthcare $3,126 $3,944 $3,627 $4,478 $1,520 $3,105 $2,423 $3,422 $3,352 Health insurance $1,785 $2,253 $2,003 $2,671 $865 $1,775 $1,364 $1,967 $1,884 Medical services $736 $932 $936 $928 $351 $737 $590 $806 $726 Drugs $486 $609 $544 $722 $245 $474 $384 $516 $612 Medical supplies $119 $149 $143 $157 $60 $118 $84 $133 $129   Entertainment $2,693 $3,256 $3,578 $2,655 $1,588 $2,716 $2,269 $2,920 $2,453 Fees and admissions $628 $785 $932 $525 $319 $653 $556 $698 $364 Audio and visual equipment and services $975 $1,092 $1,186 $929 $745 $986 $896 $1,027 $861 Pets, toys, hobbies, and playground equipment $690 $865 $942 $706 $346 $686 $549 $747 $731 Appendix 2 Predicted/actual values for independent and dependent variables Read More