Many are feeling the brunt of inflation and larger economic turmoil as economists debate whether the U.S. is in a recession.
However, income levels reveal a surprising trend among Americans and their European counterparts. Even some of the poorest Americans might be technically richer than the average European.
Looking at 2022 data from the Bureau of Economic Analysis on states’ average disposable income and European countries’ average disposable income per household for the same year, according to the World Population Review, the United States’ average was higher than even the wealthiest European country, Luxembourg.
While the U.S. average disposable income for 2022 was $51,147, per the World Population Review, Luxembourg, the most well-off European country, brought in an average of just $44,773. All other European countries had an average far below that.
Why It Matters
Americans are up against some major financial hurdles as inflation is at 2.4 percent and the housing market remains out of reach for many.
Federal student loan borrowers will see their default payments reported to creditors once again starting in May, and average salaries for some of the most common college majors like social science are declining, according to recent reports.
Disposable income by state and European country reveals Americans could theoretically have more purchasing power even amid these financial concerns, but experts say this is misleading for the greater economic conditions at work in the U.S. and in Europe.
What To Know
The average U.S. disposable income for 2022 was $51,147, almost $10,000 higher than the top European country, Luxembourg, at $44,773, according to World Population Review.
Other countries, like Germany and Belgium, saw lower average disposable income of between $34,000 and $38,000.
Even some of the poorest states in the U.S., like Mississippi, had higher average disposable income than Europeans, according to the Bureau of Economic Analysis.
Mississippi, the poorest state, had an average of $42,762, still higher than the majority of European countries, expect Luxembourg.
Richer states like Massachusetts saw a whopping average disposable income of $69,047, far exceeding any European country reviewed by World Population.
However, experts say these statistics may be misleading because of the extent of the government-provided social services that Europeans rely on, while Americans pay higher premiums on health care and car transportation on average.
Ryan McMaken, an executive editor at the Mises Institute who wrote a piece on U.S. states with a higher income than all European countries in 2018, acknowledged that income “isn’t the only measure of prosperity,” but “it is an important one.”
“Although some interventionists would like to portray the US as an economic basket case where only the super-wealthy prosper,” McMaken wrote in his 2018 article, “the numbers simply don’t bear this out. This doesn’t prove the US and other wealthy relatively libertarian countries [such as Switzerland] as flawless. But the data hardly supports crude theories that a little more government spending will pave the way to economic prosperity.”
The numerical value of Americans’ disposable income does not reflect the full picture of what Americans are up against financially, Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, told Newsweek.
“The social services of many of our European nation counterparts are vastly wider and paid prior to take-home pay,” Beene said. “While on paper the dollar amount may be higher, many Americans are having to use that disposable income for charges those living in other countries may not have to contend with.”
What People Are Saying
Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: “It’s almost impossible to meaningfully compare a country like Japan, with 124 million people, to a small state like Mississippi with just 3 million people. There’s no logical way to square that, but plenty of people still try….
“The ‘perception’ of higher disposable income comes from the way Americans are forced to spend money out-of-pocket on things those other countries fund through taxes and social programs. If I’m paying 50 percent in taxes elsewhere but get real benefits like public transportation through infrastructure spending, pensions for retirement and universal healthcare, then sure, it looks like taxes are higher, but the costs are bundled differently.”
Ryan McMaken, an executive editor at the Mises Institute, told Newsweek: “Contrary to what Europeans think, the United States is home to a huge welfare state and many millions of Americans receive income through social benefits programs. When we look at total spending on social benefits as a percentage of GDP, the US is comparable to many other European-style welfare states….
“When Europeans see numbers and comparisons like these, they often claim that there can be no comparison because in the European mind, the US is a land of terrible inequality and social Darwinism fueled by a lack of any social benefits. They’re wrong about the social benefits—which also include huge income transfers through programs like Medicare and Medicaid.”
Catherine Wilson, CEO of United Way of Greater Newark, told Newsweek: “In the states, where it may appear that Americans have more disposable income, they actually have less assets because in those same states, the cost of housing, child care, etc., is more.
“Americans might have more liquidity on hand, but they are using that cash for the same services at higher costs. That’s why people earning six figures in cities like New York or San Francisco still feel like they’re barely getting by—their income is absorbed by systems that don’t support basic affordability.”
Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, told Newsweek: “Often, the comparison of states to European countries is made to demonstrate for political arguments either how great America has it or how far it is behind its Western peers in different areas. The reality is these comparisons aren’t always fair. Yes, even some of the poorest American states rival or exceed the disposable income levels of other countries.”
What Happens Next
While in America, people tend to take home more on paper, they also pay directly for health care, retirement savings and cars, which often brings along significant debt, Thompson said. That debt is likely to remain higher than Europeans on average in the coming years.
“When you factor in those real-world costs, the “disposable income” advantage all but disappears,” Thompson said. “Higher disposable income doesn’t feel real when your paycheck has to cover things others receive through public programs. In the U.S., much of what Europeans fund through taxes, we fund through personal debt.”
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