Why We Call BS on Study Claiming Low-Income Families Spend Big on Luxuries

Low income families
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What does the word “luxury” mean to you?

Maybe it means a pair of $400 Dolce & Gabbana sunglasses and a Rolls Royce.

Or maybe it means eating out for dinner once or twice a week.

While we all have our own definitions of luxury, a new study is throwing those conceptions for a loop — and seriously misleading people as a result.

Deutsche Bank’s Definition of Luxury: Not What You Think

A recent report by Deutsche Bank Research is throwing the internet for a loop.

MarketWatch says the report revealed that Americans spend a significant percentage of their income on what the bank considers luxury goods. Furthermore, the report says low-income families, defined as the lowest fifth of earners, spend up to 40% of their income on luxuries.

At first glance, this may seem like those at the bottom of the earning bracket are blowing their hard-earned cash on things they can’t afford, right?

Wrong.

The report defines luxury goods as “goods or services consumed in greater proportions as a person’s income increases.”

So, according to that definition, low-income families are not blowing their money on obscene things. They’re just spending more money as their income increases.

What This Extra Spending Really Means

Think about it. If you’re broke, you’re probably not spending a lot of money because you don’t have it to spend!

As a result, you may have cut your budget significantly. Perhaps you downgraded your housing arrangement to save money on rent. Or maybe you’re eating ramen every night because you can’t afford much else.

It makes sense, right?

Well here’s where this report falls flat.

Deutsche Bank’s definition of luxuries unfairly portrays people who are paying for things they can finally afford, such as quality food, housing, transportation, etc., as making poor money choices.

Reddit user Algernon_Asimov explained it best in a Reddit thread about the report.

Using food as an example, the user made the point that the less money you’re earning, the cheaper the food you’re buying, and in less quantities. Once you start earning more money, you may buy more high-quality food, which can be more expensive.

Say you got a raise at work and decided to buy yourself some veggies, meat and fruit instead of eating ramen every night. Of course, this is more expensive than ramen. According to Deutsche Bank’s definition, your higher spending on food is a luxury.

**sigh**

The lesson here?

Read the fine print. Some studies aren’t always what they seem.

Kelly Smith is a junior writer and engagement specialist at The Penny Hoarder. Catch her on Twitter at @keywordkelly.