What Is the Relationship Between Family Size and Mercer Spendable Income Amounts? Spendable income is that portion of base salary that is used to purchase goods and services. As the size of a household increases, the amount of money spent on goods and services increases, but at a decreasing rate. In other words, a family may spend more on goods and services with the addition of more children, but the percentage of additional costs for each child becomes less. This is due to the following reasons: Larger households experience economies of scale when they purchase “in bulk,” as opposed to smaller families who do not do so to the same extent. Although even small households need certain items (e.g., refrigerator, washing machine), more of these items are not necessary as family size increases. Families may reallocate some portion of savings to goods and services, as well as housing, but not on a per-head/pro-rata basis. With the addition of more children, a family’s opportunity to put money into savings decreases — that is, funds originally allocated to a savings account now go to buy more recreation items, food, books, and so on. The household’s spending patterns and choices change, such that more and different types of goods and services can be purchased for a family in a somewhat larger spending budget. As individuals add family members (particularly children), the trend reflects a substitution of quality/uniqueness by quantity and more commodity/common-type goods. The examples in the chart, “Making Sense of Family Spending,” are illustrative. Mercer data reflect that as family size increases, the type and quantity of items purchased at a given income level change. Therefore, a per-head/pro-rata extrapolation would not be appropriate as family members are added. Making Sense of Family Spending Clothing — “We do not share clothes.” The individual family budget for clothing at higher income levels reflects a high-level substitution of expenditure within the clothing and other spendable income categories. For example, a single, high-earner is more likely to purchase more unique/expensive clothing, as opposed to one with children. The patterns reflect this point: Rather than spend USD300 for a single pair of shoes, a family spending pattern would involve the purchase of four pairs of shoes (two adult, two children) for USD350 - 400. Food At Home — “Meat, fruit, and vegetables are sold by the pound. Four ice creams cost four times the cost of one.” As children tend not to eat some of the more expensive food items such as steak or fish, the family diet is more likely to move towards meals with lower-cost ingredients — for example, hamburger (ground beef), macaroni and cheese, cereal — as opposed to replicating an adult diet for the children. This approach has a reducing effect on the overall cost per unit of food inputs into the family diet, enabling the purchase of more overall food with only an incremental increase in money spent for food. Food Away from Home — “If we eat out, the cost for the four of us is not 10 percent more than if I ate alone.” Single/married people at high-income levels are more likely to go to more expensive restaurants where the price per meal is significantly higher, compared to a family-oriented restaurant. Using a U.S.-based example, a single person (e.g., on a date) or married couple is more likely to go to an expensive steakhouse (Morton’s or Ruth Chris for USD75 per person) than a family of four. The family of four is more likely to go to a Chili’s or Applebee’s (where the total bill for four would be closer to USD75). Entertainment — “If we go to the movies, the cost is more than three times the cost if I went alone.” Entertainment is another area where substitution of an activity is important. Single/married people are more likely to spend more money per event and go to more recreational events more frequently than families do. Using a U.S. example again, a single person is more likely to attend Broadway shows or sporting events in addition to movies, whereas the family may take an occasional trip to the movies, which replaces many higher-cost alternatives. Vince Cordova is a Principal with Mercer's Information Product Solutions Business. Based in New York, he leads the Northeast Global Mobility segment Data practice. With more than 15 years of experience in international assignment compensation approaches, programs, and policies, he helps organizations manage policy design and program and process reviews. Vince has taught graduate-level International Management and International Human Resources courses at NYU's School of Leadership and Human Capital since 2009.