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PAGE ONE Economics

®

Smart Phones and
Budget Changes
Jeannette N. Bennett, Senior Economic Education Specialist

GLOSSARY
Budget: An itemized summary of probable
income and expenses for a given period;
a plan for managing income, spending,
and saving during a given period.
Disposable income: The amount of a person’s paycheck that is available to spend
or save.
Expenditures: Money spent to buy goods
and services.
Income: The payment people receive for
providing resources in the marketplace.
When people work, they provide human
resources (labor) and in exchange receive
income in the form of wages or salaries.
People also earn income in the form of
rent, profit, and interest.
Per capita: Per person. Determined by
dividing the total quantity by the total
population.
Productivity: The ratio of output per worker
per unit of time.
Saving: Income not spent on current consumption or taxes. Saving involves giving
up some current consumption for future
consumption.
Spending: Using some or all of your income
to buy things you want now.

“A wise man adapts himself to circumstances, as water shapes itself to
the vessel that contains it.”
—Chinese proverb

Introduction
Everyone wants financial success, but how can it be achieved? A first step
in attaining this goal is making a budget. This means creating a plan that
ensures an effective way to balance income, spending, and saving during
a given time. Because a budget is so valuable, it is specifically included in
the National Standards in Personal Finance: “People can improve their economic well-being by making informed spending decisions, which entails
collecting information, planning, and budgeting.”1
Yesterday’s budget won’t work for today. Consumer spending patterns
change in response to changes in other aspects of life, such as income,
workforce and educational levels, family demographics, and technology.
Food expenditures is one example: The percentage of per capita disposable income spent on food from 1950 to 2014 changed dramatically. In
2014, consumers had about 10 percent more of their disposable income
available for things other than food than consumers did in 1950. (See
Figure 1.) Certainly, a budget designed in 1950 would look quite different
from one created today.
Figure 1
Percent of Per Capita Disposable Income Used for
Food Expenditures in the United States, 1950-2014
Percent of Total Spending for Food
30
20
10
0

1950

1960

1970

1980

1990

2000

2010

2014

SOURCE: USDA, Economic Research Service, Food Expenditures Series, Table 7,
Food expenditures by families and individuals as a share of disposable personal income; https://www.ers.usda.gov/data-products/food-expenditures/.

April 2018	

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PAGE ONE Economics®
Phone Technology Changes Our Lives and Our Budgets
Food expenditures are not the only expenditures that
affect a budget over time. Spending patterns also change
because of the vast number of consumer goods and
services that continue to be developed and gradually
become accepted as necessities. Of course, technology
has played a huge role in this change. For example, in
1900, only one out of twenty people had a telephone; at
that time, telephones were not considered necessities
to include in a budget.2

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Figure 2
Roughly Three-Quarters of Americans Own a Smart Phone

It’s a different story today. A survey conducted in
December 2016 by the National Health Interview Survey
(NHIS) of the civilian noninstitutionalized U.S. population
indicated approximately 97 percent of households had
telephone service and 50.8 percent had only wireless
phone service. That year was the first time a majority of
American homes had only wireless telephones.3 Clearly,
telephones have now been accepted as necessities and
should be considered in a household budget.

The Government’s Support for Phones
The government validated the use of and dependence
on phones. As part of the 1996 Telecommunications Act,
a federal government-sponsored and regulated program
began to assist in the cost of landline phones. The program was designed to “ensure all Americans, including
low-income consumers and those who live in rural, insular,
high cost areas, shall have affordable service and help to
connect eligible schools, libraries, and rural health care
providers to the global telecommunications network.”4
In 2008, this program moved into the cellular (cell) phone
market. As cell phones began to increase in popularity,
the program made cell phones and cell phone service
free for qualifying consumers—with qualification determined by income level and/or participation in other
federal or state assistance programs.
The program allows eligible consumers to choose among
cell phone companies. Individual plans vary according
to the company chosen and often vary from state to
state. Some states offer unlimited calling, texting, and
even some data allowance; other states offer lesser plans.
Although estimates vary, as many as 12 to 15 million
Americans participate in the free cell phone program.5

NOTE: The White and Black segments include only non-Hispanics. The survey
was conducted from September 29 through November 6, 2016.
SOURCE: Reprinted with permission from the Pew Research Center.
http://www.pewresearch.org/fact-tank/2017/06/28/10-facts-about-smartphones/.

The Cell Phone Revolution
The mobile/cell phone revolution began in 1973. This
invention brought drastic changes to communication as
well as expenditures. New products with new features
offered new choices for consumers, with styles and
models such as the Brick phone, the Clamshell, the
Candybar, and the Razr flip phone. Service providers
soon promoted contracts for phone service. By 2007,
Apple had created the iPhone, and the smartphone
world was born.6
The smartphone expanded the traditional phone by
providing the work and services of a computer in a very
small and convenient package. American consumers
were quick to adopt this technology. A 2014 survey
conducted by the Pew Research Center found that 46
percent of smartphone owners said their smartphone is
something “they couldn’t live without.”7 Additional
research conducted by the Pew Research Center in late
2016 estimated that 77 percent of American adults owned
a smartphone. This 2016 survey indicated younger adults,
those with higher levels of education, and those with

PAGE ONE Economics®
A Smartphone can…

	• take and send pictures and videos
	• replace an alarm clock
	• tell time
	• send/receive emails
	• send/receive text messages
	• access the weather
	• give directions
	• make online orders
	• pay bills online
	• access the Internet
	• provide online banking
	• provide apps
	• serve as a calculator
	• help you look for a job
	• allow you to read an e-book
	• give you the latest news
	• replace a flashlight
higher income levels had the highest percentages of
smartphone ownership.8 (See Figure 2.)
But other groups have also latched on to the new technology. The survey showed that 42 percent of adults age
65 and older owned a smartphone. While this group
represented the lowest ownership among all groups, it
was still a fast-growing group: From 2013 to 2016, their
smartphone ownership rate increased 24 percent.9
Clearly, seniors have also been jumping on the smartphone bandwagon.

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Figure 3
Average Annual Expenditures in Cellular and Residential Phone
Services, 2007-2014

SOURCE: USDA, Brett Creech, “Expenditures on cellular phone services have
increased significantly since 2007,” Beyond the Numbers: Prices & Spending,
Vol. 5, No. 1 (U.S. Bureau of Labor Statistics, February 2016);
https://www.bls.gov/opub/btn/volume-5/expenditures-on-celluar-phone-services-have-increased-significantly-since-2007.htm.

Average Annual Expenditures on Cellular Phone Service
Spending from 2007 to 2014 by Age Group
Expenditure
2007

Expenditure
2014

Change in
Dollars

$560

$677

$117

25-34 years

728

1,048

320

35-44 years

757

1,250

493

45-54 years

753

1,248

495

55-64 years

546

970

424

65 years and older

264

534

270

Smartphone Usage

65-74 years

374

675

301

How much time do consumers spend using their smartphones? Different reports offer different answers. For
example, one 2017 report shows average usage in the
United States is a little over 2½ hours per day.10 A different
2017 source says U.S. consumers now spend 5 hours per
day on mobile devices.11 The one definite answer is that
consumers are increasingly connected to their smartphones and are seldom found “phoneless.”

75 years and older

148

348

200

Increasing Expenditures
The cost of smartphone ownership can vary depending
on the phone itself, the contract, and the options pur-

3

Age Group
Under 25 years

SOURCE: U.S. Bureau of Labor Statistics. Brett Creech, “Expenditures on cellular phone services have increased significantly since 2007,” Beyond the
Numbers: Prices & Spending, vol. 5, no. 1 (U.S. Bureau of Labor Statistics,
February 2016), Table 2.
https://www.bls.gov/opub/btn/volume-5/expenditures-on-celluar-phone-services-have-increased-significantly-since-2007.htm.

chased. When the smartphone revolution began in 2007,
expenditures for cellular phone service in the United
States exceeded the amount spent on landlines, or residential lines, for the first time. Expenditures on cellular
phone services continue to rise rapidly.12 (See Figure 3.)

PAGE ONE Economics®
From 2007-14, the expenditures on cell phone service
increased among all age groups. (See the table.) Of course,
there are more features and advanced technology
involved each time the price tag increases. Fingerprint
scanners, faster-charging batteries, better cameras, and
more memory are examples of technology included in
the newer often-higher price tags.

Conclusion
The percent of per capita disposable income used for
food expenditures over the years has decreased; the
expenditures on cell phones have increased. These examples demonstrate that a budget is dynamic and requires
regular adjustment.
The first mobile phones were designed only for making
calls. These were replaced with an advanced cell phone,
appropriately called the smartphone. With its capability
to perform advanced technological tasks, the smartphone
has been accepted for its convenience as well as its ability
to increase productivity. The cell phone revolution has
changed both the way we interact with our world and
our spending choices. And circumstances will continue
to change. Technology will continue to bring new developments that will gradually become accepted as necessities and, therefore, change spending patterns.
A deliberate adaptation to shifts in spending patterns is
a step toward financial success. A recent study by U.S.
Bank shows that only 41 percent of Americans use a
budget.13 Perhaps this will change with more attention
and application of the Chinese proverb: A wise man adapts
himself to circumstances, as water shapes itself to the vessel
that contains it. n

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Notes
1 Council for Economic Education. “National Standards for Financial Literacy.”
New York, NY: 2013, p. 6. http://councilforeconed.org/wp/wp-content/
uploads/2013/02/national-standards-for-financial-literacy.pdf.
2 Thompson, Derek. The Atlantic. “How America Spends Money: 100 Years in the
Life of the Family Budget.” April 2012;
https://www.theatlantic.com/business/archive/2012/04/how-america-spendsmoney-100-years-in-the-life-of-the-family-budget/255475/.
3 Blumberg SJ, Luke JV. Wireless substitution: Early release of estimates from
the National Health Interview Survey, July–December 2016. National Center for
Health Statistics. May 2017.
https://www.cdc.gov/nchs/data/nhis/earlyrelease/wireless201705.pdf.
4 Bank, Justin. The Annenberg Public Policy Center. “The Obama Phone?” Nov. 5,
2009; https://www.factcheck.org/2009/10/the-obama-phone/.
5 Free Government Cell Phones. “States Providing Cell Phones from the
Government to Low-Income Residents”;
https://www.freegovernmentcellphones.net/states.
6 Nguyen, Nicole. “The Evolution of the Cell Phone—How Far It’s Come!” July 4,
2014; https://readwrite.com/2014/07/04/cell-phone-evolution-popsugar/.
7 Rainie, Lee and Perrin, Andrew. Pew Research Center. “10 Facts about Smartphones
as the iPhone Turns 10,” June 28, 2017; http://www.pewresearch.org/facttank/2017/06/28/10-facts-about-smartphones/.
8

Ibid.

9

Ibid.

10

Dunn, Jeff. Business Insider. “Smartphone Addiction’ Seems to Only Be Getting
Stronger,” May 25, 2017; http://www.businessinsider.com/people-spendingmore-time-on-smartphones-chart-2017-5.
11 Perez, Sarah. “U.S. consumers now spend 5 hours per day on mobile devices”
March 3, 2017 https://hackernoon.com/how-much-time-do-people-spend-ontheir-mobile-phones-in-2017-e5f90a0b10a6.
12 Creech, Brett. “Expenditures on cellular phone services have increased significantly since 2007,” Beyond the Numbers: Prices & Spending, vol. 5, no. 1 (U.S.
Bureau of Labor Statistics, February 2016);
https://www.bls.gov/opub/btn/volume-5/expenditures-on-celluar-phone-services-have-increased-significantly-since-2007.htm.
13 Backman, Maurie. CNN Money. The Motley Fool. “Nearly 3 in 5 Americans Are
Making This Huge Financial Mistake,” October 24, 2016;
http://money.cnn.com/2016/10/24/pf/financial-mistake-budget/index.html.

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© 2018, Federal Reserve Bank of St. Louis. Views expressed do not necessarily reflect official positions of the Federal Reserve System.

PAGE ONE Economics®

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Name___________________________________ Period_______
Federal Reserve Bank of St. Louis Page One Economics ®:

“Smart Phones and Budget Changes”

After reading the article, select the best answer to each question.
1.	
	
	
	
	

Spending on cell phone service from 2007 to 2014
a.	 increased in younger age groups and decreased in older age groups.
b.	 increased among all age groups.
c.	 decreased by a small percentage.
d.	 decreased because of more features and added technology.

2.	
	
	
	
	

On average, which age group spent the most on cellular phone service spending in 2014?
a.	 75 years and older
b.	 under 25 years
c.	 between 25 and 34 years old
d.	 between 35 and 44 years old

3.	
	
	
	
	

Telephone expenditures have become part of household budgets because
a.	 more than 90 percent of Americans use a budget.
b.	 telephones are now accepted as necessities.
c.	 government programs do not support telephone services.
d.	 food expenses have increased.

4.	
	
	
	
	

On average, people in 1950 spent
a.	 the same percentage of their disposable income on food as people did in 1960.
b.	 a smaller percentage of their disposable income on food than people did in 1970.
c.	 a greater percentage of their disposable income on food than people did in 2014.
d.	 the same percentage of their disposable income on food as people did in 2000.

5.	
	
	
	
	

Government programs that support phone usage
a.	 provide free cell phones to all American consumers.
b.	 require consumers who are eligible for free cell phones to use the same cell phone company.
c.	 first began in 1973 because of the cell phone revolution.
d.	 were first started to help people with the cost of a landline phone.

6.	
	
	
	
	

The percentage of smartphone ownership in the United States
a.	 is the same among all education levels of consumers.
b.	 increases as the level of education increases.
c.	 increases as the level of education decreases.
d.	 is not affected by the level of education.

PAGE ONE Economics®

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7.	 The smartphone
	

a.	 was originally designed as the first of wireless phones.

	

b.	 is a tool that can increase productivity.

	

c.	 is helpful to only high income earners.

	

d.	 was considered a necessity in the 1970s.

8.	 It is important to make regular adjustments to a household budget because
	

a.	 the percentage of per capita disposable income spent on food increases each year.

	

b.	 consumer spending patterns remain the same over the years.

	

c.	 adapting to shifts in spending patterns is a step toward financial success.

	

d.	 reports show fewer than half of Americans use a budget.

9.	 Since 2007, the average annual expenditures on residential phone services (landlines) have
	

a.	 decreased each year.

	

b.	 increased in all years except 2011, which showed a decrease.

	

c.	 remained equal to the amount spent on cellular service.

	

d.	 been greater than the amount spent on cellular service.

10.	 A budget is a plan that addresses a time period and
	

a.	 will probably not need adjustments since the smartphone has already been invented.

	

b.	 will be the same in 1950 and as it is in the current year.

	

c.	 is helpful to only high income earners.

	

d.	 helps to balance income, spending, and saving.

11.	 Today most consumers consider a cell phone to be a necessity. There are choices when selecting the phone itself, 	
	 the contract, and the options purchased. The basic cell phone is much less expensive than a smartphone, but 	
	 more consumers are choosing the more expensive smartphone. Explain reasons why consumers are willing to 	
	 pay more for smartphones.

6

PAGE ONE Economics®

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12.	 George is on a business trip and his flight includes a two-hour layover between connecting flights. Before he had 	
	 a smartphone, he usually sat in the airport and waited. Sometimes he read a newspaper to pass the time. Now he 	
	 has a smartphone. What are some work tasks that George can complete during this two-hour wait using his 	
	 smartphone? How does having a smartphone affect the amount of work that George can complete?

13.	 Explain how the Chinese proverb “A wise man adapts himself to circumstances, as water shapes itself to the vessel 	
	 that contains it” relates to managing a budget.

14.	 Give possible reasons why the number of landlines continues to decrease.


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