How Rich Countries Spend Their Money

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How a country spends its money says a lot about its culture -- what people value, what they can afford, what things cost, and so on.

Last week the Bureau of Labor Statistics released data showing how American consumers spend their money compared with three other nations: Canada, the U.K., and Japan. All four nations are rich, but how their citizens spend money varies wildly:

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Source: Bureau of Labor Statistics.

This chart may be a lot to digest. So here are a few highlights:

  • 29% of American expenditures go toward housing. In Japan it's 21.6%. Canada and the U.K., 24%.
  • 2.3% of American expenditures go toward education. It's about the same in Canada, but much different in Japan and the U.K.: 4% and 1.8%, respectively.
  • 6.9% of American expenditures go toward health care, compared with 4% in Japan and Canada, and 1.4% in the U.K.

I think a few points can be drawn from these numbers.

Americans spend more of their income on housing, but they also live in some of the biggest houses in the world. BBC notes that the average home constructed since 2003 was 2,300 square feet in the U.S., but just 818 square feet in the U.K. Furthermore, U.S. housing policies like the mortgage interest deduction, non-recourse loans, and subsidized 30-year mortgages are known to artificially push home prices up. Most developed nations have either scrapped these policies or wouldn't dream of them in the first place. So comparisons between countries may not be apples-to-apples. Americans spend more on homes, but that's because they're getting more home -- and doing it with less risk -- than consumers of other developed nations.

Health care is one of the most interesting comparisons between nations. The common response to numbers showing U.S. consumers spend more on health care than other countries is that we don't have a government-run universal health care system as most developed nations do. So while American consumers pay more for health care out of pocket, others have higher rates of government health care spending. Apples to oranges, in other words.

Or is it? The common response, it turns out, isn't quite right. While the U.S. government provides health care for only a small subset of its population (the poor and elderly), it actually spends more on health care per capita than almost all developed nations that offer universal coverage. Add in private spending, and the U.S. is truly in a league of its own:

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Source: Congressional Research Service.

There is no consensus when it comes to analyzing this chart -- a chart, I'll point out, that would be even more skewed with current data. Some say higher health care spending in the U.S. funds the best health care in the world. Others note that life expectancy in the U.S. is less than other developed nations. Some say higher spending in the U.S. is what promotes innovation pioneered at companies like Intuitive Surgical. Others say the spending difference mainly goes to administrative waste and unnecessary procedures. Regardless of who's right, the U.S. spends more on health care than any other rich nation on the planet.

Finally, as TheWashingtonPost's Brad Plumer pointed out, "Americans spend more money eating out than their peers, but they spend a significantly smaller portion of their budgets on cooking at home than Canada, Britain, or Japan."

According to the USDA, eating out once a week translates to two extra pounds a year on average. And according to Humana, each overweight pound translates to an extra $19.39 a year in extra health care costs. Funny how these things add up.

At the time this article was published Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Motley Fool newsletter services have recommended buying shares of Intuitive Surgical. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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