How Food Spending Varies with Income

The question of how much money people spend on food as their income rises or falls has been a question that has long interested economists.  If food is a "normal" good, one would expect consumption (and spending) to increase as income increases.  This relationship has implications for projections of food demand and food security as incomes grow or as countries develop and become wealthier.  

However, just because people will spend more on food as their income increases, the relationship isn't necessarily proportional.  In fact, the famous Engel curve, hypothesized in the mid- 1800s, conjectured that the share of total spending allocated to food would fall as income increased.  Also of interest is how demand for "quality" and "convenience" changes as income changes, which relates to whether people spend more money on food at home vs. away from home as income increases.  

To explore these issues, I turned to data from the Food Demand Survey (FooDS), (I'm using data from the first four years of the project which includes observations from more than 48,000 respondents).  On the survey, respondents are asked how much money they spent (per week) on food at home and away from home (you can find exact wording of the questions on page 3 of this document).  I use these data to estimate mean food spending for different household income categories at home and away from home, while controlling for other factors like age, gender, education, race, region of residence, household size, presence of children in the household, and status as primary shopper or SNAP recipient.  

Here is estimated weekly food spending by annual household income.


Food at home, and particularly food away from home, appear to be "normal" goods - people spend more on these categories as their income grows.  Note that my estimation approach does not require a monotonic relationship (i.e., completely increasing or decreasing relationship) between income and food spending, but that's what the estimates reveal.  People in the lowest income category only spend $78/week at home and $33/week away from home on food on average (for a total of $111/week).  By contrast, people in the highest income category spend $125/week at home and $96/week away from home on food (for a total of $221/week).  These differences are not a result of differences in household size, etc. because I've already controlled for those factors.  Spending on food away from home tends to accelerate the fastest when going from $60,000-$59,999/year to $80,000-$99,000/year and then again when moving from the penultimate to the highest income category.  

Despite the fact that spending on food increases as income increases, the Engel curve suggests that spending on food as a SHARE of income should decline as income increases.  Below are the estimates from my data, which suggest exactly that.


Consumers with annual household incomes below $20,000/year spend 27% of their total income on food at home and 12% of their income on food away from home (for a total of 39% of income spent on food).  By contrast, people with annual household incomes above $160,000/year, only spend 3.6% of their income on food at home and 2.8% of their income on food away from home (for a total of 6.4% of income spent on food).    

Also of interest is how food spending away from as a share of total food spending varies with income.  That is, do richer households tend to eat out vs. in more than poorer households?  The following figure suggests the answer is "yes".  


Respondents in the lowest income categories spend about 30% of their food budget on food away from home.  By contrast, households in the highest income category spend 43% of their food budget away from home.*  

Why would higher income households spend more of their food budget away from home than lower income households?  There are a variety of fairly obvious answers. For example, if one can afford to pay others to cook and clean up for them, they will.  And, food away from home can often be more expensive, making it less attractive (or available) to lower income households.  

I'll also throw out a potentially less conventional explanation: eating away from home is more visible than eating at home.  There is some research suggesting that the size of the income elasticity of demand (i.e., how much consumption increases with income) is driven by how "visible" the consumption of the good is because of a concept known as conspicuous consumption.  That is, we buy some goods to signal to others our "status" or "social standing", and the more visible the purchase of the good is, the more prone it is to these sorts of status-competitions (which economists typical view as socially wasteful as it's a zero sum game).  If this is true, it would be interesting to know whether there are similar effects for different foods with different levels of "visibility".  


*Note: These shares are a bit lower than the aggregate food spending at home vs. away from home reported by the USDA (e.g., see table 10 at this site, which shows in 2014 that 43.7% of household spending is away from home of food expenditures; a figure that rises to 50.1% if one includes food eaten at schools and prisons and meals paid for by expense accounts, etc.) but note that I'm holding various demographic characteristics constant to compare across household incomes, whereas USDA data are simply comparing aggregate spending regardless of who spent it.