What counts as “discretionary” spending?
Retail sales fell in October for the first time in seven months, we learned today.
Consumers are starting to spend less on all sorts of things, including cars, furniture, building supplies, books and sports equipment.
Target and Home Depot are both feeling that pull back. Both companies saw their sales fall in the third quarter — particularly, they said, in “discretionary” categories.
But what does discretionary really mean?
Most of us buy things we don’t really need, at least sometimes. I, for example, got takeout last night because I didn’t feel like cooking.
David Wessel at the Brookings Institution is going to New York this weekend for work. “But on Saturday evening, I’m going to a Broadway show with my wife,” he said.
Both of those are examples of “discretionary spending.”
“Things that you put off if you don’t have a lot of money, and you spend more on when you have a lot of money,” Wessel said.
Put another way: “In the context of consumer spending, discretionary spending are the items you get to choose,” said Elaine Maag at the Tax Policy Center.
Buying food, for example, is a necessity. But, said Maag, “I can choose whether to purchase a candy bar to go with my dinner or I can only choose the vegetables.”
Buying clothes is also a necessity. But buying new sweaters every year because you’re bored of the old ones is discretionary.
It seems straightforward, but Luisa Blanco at Pepperdine University said the reality is muddy. “It gets a little tricky sometimes to really determine what is discretionary for different people,” she said.
Take the holidays, and all the money many of us spend buying presents.
“If I don’t have enough money, that’s discretionary,” she said. “But I am expected, right, to give my kids gifts on Christmas and that actually creates a lot of stress for a lot of families. Because it’s discretionary spending, but it’s not, right?”
It’s a blurry line.
People who don’t have to worry about money often buy things they think of as necessities, but really aren’t, said Jonathan Parker at MIT’s Sloan School of Management.
“When you go to the supermarket are you buying more prepared foods, or are you putting in the work to turn the less expensive foods into dinner yourself? Are you buying the nice kind of steak, or are you buying lots of rotisserie chicken?” he said.
And, Parker said, cutting back on discretionary spending looks different for different people, too.
“That might be simply moving from a pumpkin double spice latte to a plain coffee,” he said. “It might also be not going out to dinner, it might be going on a vacation where you go camping instead of going to a nice hotel.”
Or it might mean not buying anything extra at all.
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