The 2011 average family living expense for the 169 families’ data analyzed from the Kentucky Farm Business Management Program (KFBM) was $64,558. This figure includes expendables, contributions, medical expenses, life insurance and capital purchases, but does not include income or social security taxes. The average family size is 2.6 people, which has been a fairly consistent number over the years. This was actually a lower family living expense than was expected for 2011. Not only is that the lowest it has been since 2006, but producers also enjoyed high net farm incomes.
This anomaly could be explained in a variety of ways. The data indicates that net non-farm income was only $20,138 in 2011. That is a decrease from 2006 when it was at its highest at $43,641. If more families are depending solely on the farm to generate their income, then it would be expected they would need to be stricter with their budgeting for family expenses to accommodate the variability of farming income. However, the information in the data set changed over the years. In prior years, the non-farm checking accounts (which included the off farm income and expenses) were accounted for in the data. But, as the farming operations get more complicated, specialists opt to make sure the farm data is as correct as possible and don’t always ask to see the non-farm related accounts.
Another explanation for the decrease in family living expense could be in the families analyzed in the data set. Of the 169 families; 103 were 1-2 member households, 59 were 3-5 member households and only 7 were >5 member households. The average age for the 1-2 member households was 50 while the other two groups had an average age of 46. So, the bulk of the data was from two person households (no kids) that were older. In general, this group will not have the expenses of those of larger, younger families with kids. Examples are medical expenses, college tuition, and the cost of teenagers.
Something else that has changed over the past few years is family living expenditures on capital purchases. This refers to things like homes, boats, recreational vehicles, etc. In 2008-2010, the expenses in this category were quite a bit higher than in previous years. Remember, 2008 was the first year we really started seeing an increase in net farm incomes. However, this figure dropped back down in 2011. Perhaps the big ticket items were purchased on the upswing in net farm incomes and adjusted back down.
Regardless of the reason for the changes over the years, family living expense remains a large factor in analyzing the financial situation of farming operations. On average, they spent 31% of their net farm income on family living. This was consistent across high and low performing farms. As always, it is important for the specialists to review the data for each farm on an individual basis to offer points of discussion. (Suzy Martin)