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TitleFAQ: What is discretionary consumer income?
AuthorPhillip Thorne

What is discretionary consumer income (or spending), and where is it reported?


Discretionary consumer income is that portion of income not devoted to taxes or essential spending, and discretionary spending is the portion not saved.  Do not confuse it with disposable income, which is the remainder after taxes, or with discretionary government spending, which is the remainder after mandatory government spending and government debt service.

Structurally, discretionary consumer (or personal) income and expenditures relate as follows:

  • Gross income
    • Personal income taxes
    • Personal disposable income (a.k.a. after-tax income)
      • Necessary expenditures (a.k.a. basic spending, fixed spending, essentials)
      • Compulsory payments
      • Discretionary income
        • Discretionary expenditures (a.k.a. nonessential, luxuries)
        • Personal savings

Together, necessary and discretionary expenditures comprise personal consumption expenditures.

In the U.S.

As of 2014 there is no official U.S. definition of discretionary consumer spending, and therefore no single reported time series.  Nor is there a single definition of basic spending, which may comprise food, clothing and shelter; or as food, child care, rent or mortgage, property maintenance, insurance, medical, and transportation.  By their nature, basic expenditures are not completely fixed, but are more difficult to adjust than other categories of spending (e.g., dining out, entertainment, travel, investment).

You will need to compute basic spending or discretionary spending yourself.  Use detailed datasets like the following and aggregate appropriate expenditure categories.

  • Census Bureau Monthly Trade and Food Services
  • BEA NIPA personal consumption expenditure underlying detail, e.g., table 2.3.6.U
  • BLS annual Consumer Expenditure Survey

In an alternate approach, one study by the U.S. Census Bureau (c.1991) defined discretionary income relative to a threshold for average expenditures for comparable households.

Unofficial measures

Investment firms, lenders, and marketers estimate discretionary income to assess the potential for saving, investment, consumer loans, and luxury purchases.  The BEA is aware that investment banks such as Deutsche Bank and Goldman Sachs use measures of available cash that deduct taxes and basic expenses and add net borrowing.