What Drives Consumer Expenditure in the World’s Highest-Spending Cities?

High rents, combined with costly transportation and other must-haves, make life in many of the world’s major cities undeniably expensive. Certain expenditure categories, however, are significantly more important than others in their impact on consumer spending dynamics.

Consumer expenditure highest in European and American cities

Despite some minor variation that occurs from one year to another, the list of the world’s top 20 highest-spending cities tends to be fairly stable, dominated by the “usual suspects” from Europe and the US. In 2013, the highest per capita consumer expenditure was recorded in Zurich, followed by three American cities: Boston, San Francisco and Washington.

Cities with Highest Consumer Expenditure in the World, 2013

CityConsumer spending, US$ per capita% above national average
San Francisco50,77643%
New York43,60823%
Los Angeles37,2315%
Abu Dhabi36,07659%

Source: Euromonitor International

City spending fuelled by housing costs

Averaging per capita spending of almost US$54,500 per year, Zurich enjoyed – if “enjoyed” is indeed the right word for it – a lifestyle 20% more expensive than the already impressive Swiss average of US$45,300. Somewhat bigger disparities were witnessed in American cities, in particular Boston and San Francisco, where average annual consumer expenditure was 40-50% higher than the national average. These were also the fastest-growing American cities in terms of personal spending. Since 2008, real price consumer expenditure in Boston went up by 15% and in San Francisco by 8%, largely due to a rise in rental accommodation costs, fuelled by ever-increasing high-technology investments in the area, and, consequently, rising numbers of people with high incomes competing for a limited amount of property.

Indeed, housing was by far the single largest item in the budget of city dwellers in developed world: 16 out of the 20 highest-spending cities globally saw housing as the principal reason for the high consumer expenditure, its weight in the total consumption basket averaging 24% in 2013, unchanged since 2008. In San Francisco in particular real estate was an issue of growing concern. Housing expenditure in this city, estimated at just over US$11,000 per year in 2013, was 67% higher than the US average. Housing was also a major headache in land-scarce New York, the sixth highest-spending city in the world, where consumers had to endure 51% higher expenditure on accommodation than the national average.

Medical bill goes up in US cities

Medical services is another sensitive area when it comes to city consumer expenditure. As well as being the second highest contributor to personal spending, medical expenses accounted for the fastest-growing cost group. Since 2008, 15 out of 20 cities saw their per capita spending in this category grow, by 12% on average in constant value terms.

Medical Costs in Total Expenditure Increase, US$ per capita, 2008-2013, constant 2013 prices

Health Care in Cities

Source: Euromonitor International

The increase was particularly vicious in the US: Washington, Boston and Philadelphia all recorded growth of at least 20% in their per capita medical expenses in 2008-2013. As such, soaring health costs accounted for most of the overall expenditure increase in these cities. At the end of 2013, a typical Washington household – including visiting households – allocated 20% of their total spending on health goods and medical services. In value terms, annual medical expenses in Washington were US$2,200 higher than the US average. For comparison, the difference between Stockholm and Sweden was just US$160.

Future implications

Unless their incomes improve enough to compensate for growing everyday expenditure, consumers in many of today’s highest-spending cities are likely to eventually feel poorer, and less inclined to indulge in discretionary spending. Total per capita expenditure is expected to grow in 13 out of the 20 cities over 2014-2020, but a lot of the increase will continue to be absorbed by necessities such as rent, transportation and medical services. Also, because these expenditure groups typically account for a big chunk of total household budget, even the tiniest increase in the category of housing, for example, might have a more than trivial impact on discretionary consumption trends.