Budget Allocation Patterns of African Americans

The Consumer Expenditure Survey (1980-1992), Consumer Price Index (1980-1992), and ACCRA Cost of Living Index (1990) are used to construct annual household expenditure data from 1980 to 1992 to compare household budget allocation patterns of African Americans to Asian Americans, Caucasian Americans, and Hispanic Americans. Using the LA/AIDS demand system, researchers found that African American households have statistically significantly different budget allocation patterns in more than half of the 13 expenditure categories investigated in this study, after controlling for other socioeconomic and demographic characteristics. This study constructs a large household level expenditure data set with income, prices, and demographic information to compare the budget allocation patterns of African Americans to the budget allocation patterns of three other ethnic groups: Asian-Pacific Americans, Caucasian Americans, and Hispanic Americans. The percentage increase in the African American population in the United States has been greater than that of the total U.S. population from 1980 to 1992 (11.9 percent and 11.2 percent, respectively). In 1992, the total population of African Americans was approximately 31.6 million, representing 12.4 percent of the United States population (U.S. Bureau of the Census 1994). Not only has the African American population increased over the past decade, but the African American consumer market also has increased. Morris (1993) noted that African Americans spend approximately $213 billion annually, and millions are spent on advertising to this population. The fast growing African American population and consumer market are creating a need for information on the effects of ethnicity on expenditures. Marketers need this information to design ways to better meet the needs of African Americans. The knowledge gained from this study can fine tune marketing strategies beyond the simple niche advertising efforts. The knowledge also can begin to provide extension experts and government officials with better information for developing education programs and government policies to effectively serve the African American population. In addition, economists can use this information when further developing economic theories of consumer behavior (Wagner and Soberon-Ferrer 1990). Several researchers have examined the effects of income and other socioeconomic and demographic characteristics on household expenditures for various products and services, but few studies have examined the effect of ethnicity on household budget allocation patterns, according to Wagner and Soberon-Ferrer (1990). Wagner and Soberon-Ferrer (1990) offered two reasons for the lack of research in this area: "First, the effect of ethnicity on household behavior did not emerge as an important research issue until the Civil Rights movement of the 1960s and the explosive growth of the Hispanic population during the 1970s. Second, expenditure data classified by ethnicity only recently have became available" (181). Further, when data first became available, the sample size for some ethnic groups was too small to provide the base for sophisticated statistical analyses. Our study on the expenditure patterns of African Americans is unique in the following ways. First, the data set constructed in this study is the largest cross-sectional data set ever used to study minority expenditure patterns. The inclusion of price information makes it possible for us to estimate price elasticities for different commodities. Second, we take into consideration that household expenditure decisions on different expenditure categories are made simultaneously and estimated a demand system to systematically investigate African American household expenditure patterns in 13 expenditure categories. Third, we compare African American households with not only Caucasian households, but also Hispanic households and Asian American households. …