A Case Study in Livingston County, NY

The research and analysis that is undertaken at CORE Business Analytics often takes us on some deep dives. Becoming immersed in the data though inevitably reveals powerful insights. This was no different while running statistical analysis on the local demographics of a fellow Livingston County small town. The data that we uncovered was remarkable, however, a few items really stood out. Within this typical small New York town we noticed that median household income is equal to: $45,316.  Meanwhile, total household expenditures equated to: $63,939.  This represents an annual household “net loss” of $18,623, or a 30% deficit.  This is sort of staggering. 

As with any statistical data set there is a margin of error (MoE) to consider, and in this case study we are keeping in mind a healthy MoE, however, in order for the median household to “break even” for the year, income would have to increase 15% up to $52,113, and expenses would have to decrease by 18.5% down to $52,110! 

As we review these statistics it begins to sink in that either modern income levels in small town America are greatly suppressed, for reasons we will have to consider and revisit in a later post, or the social desire to consume goods and services is completely unsustainable from a household budget perspective.  Having a decade of corporate experience while working in the NYC hedge fund industry, it was very apparent to us that corporate salaries are dwarfed by corporate revenues.  And outside of cities, jobs paying between $50,000-$100,000 annually are rather few and far between.  So while it may be plausible that income levels are somewhat suppressed in small town America, households must remain cognizant of “real income.” With the median household expense levels though, it appears the limits of “real income” are being disregarded. 

Important to note, we must acknowledge the possibility that perhaps for some of this consumption consumers do not have a choice; they are being forced to consume at the current price levels.  To better understand this notion we would have to measure the price elasticity of demand for the goods and services available in our market, a topic we hope to delve into further in the near future.  If there are an inordinate number of inelastic goods and services, those markets may need to be optimized in order to drive price down.

Assuming that consumers are not being exploited though, and the household income net deficit is more directly affected by consumer choices, we must educate consumers to make more responsible, fiscally responsible choices.  A population that spends a lifetime indebted to consumption is one that spends all of its time treading water; in that scenario it does not take long before all energy is devoted to keeping your head above the surface. 

A Chart of Household Expenditures for our Case Study Town*

*Source: United States Census Bureau

Now, let’s take a look at two examples most every household in our case study has in common:

• Consumer expenditures per household on Housing ($20,065, or $1,672/month)
  • The general rule of thumb is that housing expenses should not exceed 25% of monthly income.
• Consumer expenditures per household on Local Transportation ($7,494, or $662/month)
  • Another rule of thumb is that vehicle expenses should not exceed 15% of monthly income.

For a moment, let’s compare these figures against income, instead of expenses as the above chart does. Households currently spend 44% of their income on housing, while simultaneously spending 16.5% of income on vehicle and local travel related expenses.  Again, we must consider a healthy margin of error, however, together these two categories account for approximately 60.5% of median household income, not the 40% or less prescribed by the general rule of thumb for these categories.  Scratching out some more math, after housing and local transportation, households are left with approx. $17,757 total, or $1,480 per month, to pay for the expenses describe in the pie chart, such as food, healthcare, clothing, savings, entertainment, etc.

What does all of this mean though? 

Well, if you are a business owner it becomes critical to consider your customer’s available disposable income.  As you consider this, it will help you more effectively price your goods or services.  It can also help you become a more successful business because you have an idea of what your customers genuinely need: an exceptional experience, at a fair price.  Prove to your customers you understand the community you have set up shop in. 

And for customers, this means you can demand a more premium experience.  Throughout our entire lives, people are “reaching” into our pockets to lift as much money out of our wallets as possible; demand more from those people.  Demand more for your money, become a more discerning consumer, focus on the quality of goods and services and less on quantity and see if that does not help you become a more fiscally responsible consumer.  Base purchases on the added value it brings to your life.  Base purchases on how long they will bring you value, not how fast.  Before you buy something, ask if you can live without it?  There are countless ways to spend our money, but if each purchase was prefaced by an internal debate of do I want this, or do I need this, your wallet will regularly thank you.

Did you like this topic? Perhaps there are topics you would like us to take a deep dive into and let you know what we find? Let us know! We would love to hear from you.

Contact CORE today with any questions, concerns, or comments you have about your business, or the businesses in your community. Let CORE get into the numbers for you, we look forward to the opportunity!