The Reasons We Spend as Much as We Do
What a place. We spent $5.3 billion on furniture and home furnishings in California in 1987. That was more than five times what we spent at bakeries, more than four times what we spent at hardware stores and more than twice what we spent at liquor stores.
According to a survey by Sales & Marketing Management magazine, the Los Angeles-Long Beach metropolitan area is the richest market in the nation, as measured by “effective buying income.” That’s an estimate of the amount of money people have left over from their paychecks after paying taxes and other recurring expenses.
The Los Angeles area will have an estimated $135.2 billion of such income this year, the magazine says. Compare that to New York, the closest competitor, at $132.1 billion and Chicago at $93.4 billion. Anaheim/Santa Ana will have $39.2 billion, San Diego $38.3 billion and San Francisco $32.6 billion, which ranks them all much higher than places such as Pittsburgh, Phoenix and Denver.
We’ve got a lot of money to spend here, and we seem to spend it on everything. That’s why the Golden State has been considered a retailer’s paradise compared to other parts of the country. If one retailer stumbles, another is waiting in line to get in. Nordstrom’s came in. And Mervyn’s. And soon, Wal-Mart.
The accepted wisdom about the California market is that it’s easier to get rich here and harder to fail. That, of course, is greatly oversimplified and not always accurate. But as a general rule, over time, it still applies.
There are a lot of reasons for this, but perhaps the most basic has to do with our households, which are the underpinning of any economy as well as society in general. The size, number and composition of households determines much of what happens in a particular place.
In California, not surprisingly, we have more households than any other state--more than 10.5 million as of last January. They also tend to have slightly fewer people in them than the typical American household--about 3.55 per household versus about 3.7 nationally. We also have more single-person households proportionally, and the members of California households are typically younger than the national average.
Los Angeles ranks No. 1 in households with “effective buying income” above $50,000 in the Sales & Marketing Management survey. That’s also a key to a dynamic retail economy. The magazine estimated that nearly 872,000 households in the Los Angeles/Long Beach area had household buying power at that level or higher. By comparison, New York had 733,300; Washington had 575,000.
What that means is that, at least in the Los Angeles metropolitan area, our households have workers with unusually high incomes. Sometimes it takes two or three wage earners to reach that average buying income, but we seem to have them.
And because our households frequently have several income producers at relatively high levels, each may be a fairly big spender in his or her own right. Each may acquire expensive clothes, cars, furniture and so on. There seems to be less emphasis on communal, or family, spending goals in California households, once a home is acquired. Each wage earner often saves for a personal goal.
We also lead the nation in what have been dubbed “economic households”--unrelated people who live together for economic reasons only. To afford the rent, for instance, or to be able to buy a house. These households also frequently have high income levels and very divergent economic goals beyond owning a home or renting a better apartment.
To be sure, most California households don’t have money to burn. In fact, even though we may have more wealthy households than any place else, the average household income in 1988 was just $18,763. But even that figure is up substantially from the $11,603 recorded in 1980, and both figures are well above the national averages. So even a “typical” California household is still better off financially than the “typical” American household.
Although Californians often complain about our high cost of living, some costs here are actually lower than the national average. Heating a home, for instance, is much cheaper than in colder climates. Our cars last three to four years longer than the national average, thanks to the milder climate and lack of snow and salt on the roads.
Blend all this and you get some understanding of why Californians have a reputation for free-spending ways. Sure, we spend more for housing and transportation. But we have more income than average Americans, and the people we share our “space” with--whether family or not--also have more income. Our mild climate holds down at least some basic costs of living.
Maybe that’s why we all head for the mall.
