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Today's multitude of gadgets takes a bite out of the family budget

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Got an iPod? Digital video recorder? Digital camera? Wii? Computer? Surround-sound system? Satellite radio?

How about any of the hot gadgets that sell for $500 or more, such as a PlayStation 3, an Xbox 360, an iPhone or an HDTV?

These days, the typical family has dozens of such gadgets around the house, and a growing number seem to come with staggering prices. So it'll be no shock that the bill for electronics is going up.



In hard dollars, we're paying more for hardware every year. But the surprising thing is that - despite this onslaught of gizmos - tech spending is flat or falling compared with other areas in the household budget.

"The average household has 25 consumer-electronic products," said Steve Koenig, an analyst with the Consumer Electronics Association, a trade association. "If you look back over the years, that number is steadily increasing. If there's an increase in spending, it's from that increase in the volume of purchases."

According to the CEA, the average household spent $1,555 on electronics last year, a figure that has steadily risen from the $350 annual expenditure when the association started collecting data in 1975.

But when you view that increase from the perspective of rising household income, spending on electronics accounts for a shrinking slice of the budget pie.

In the CEA analysis, the average U.S. home spent $1,067 on electronics in 1995. That rose to $1,172 in 2000, then to $1,361 in 2005.

But according to the U.S. Census Bureau, Americans' median household income grew faster over that same period. Tech spending has dropped from 3.13% of household income in 1995 to 2.78% in 2000 and 2.94% in 2005.

While there seem to be more sticker-shock-inducing gadgets on the market than ever, Koenig said many of those speak to price deflation more than inflation.

The PlayStation 3, for example, includes a BluRay next-generation movie disc player, he said. When the PS3 launched in November, single-purpose BluRay and competing HD DVD players cost about $1,000. The PS3's $600 price was a sign of future falling prices.

"Toshiba just announced three HD DVD players for $299," Koenig said. "Price deflation is rampant in the electronics industry."

American families are in the midst of the conversion to digital, high-definition TV. In many cases, that means spending $1,000 or more on a television, something that few households did five or 10 years ago.

While there has been a jump in price along with the move to bigger digital TVs, television prices also reflect falling prices when viewed from another perspective, Koenig said. Consumers can find 40-inch plasma TVs for about $1,000 - about half of what they cost two years ago, he said.

Koenig said it's easy to get the impression that gadgets are becoming more expensive with highly visible launches of items such as the Xbox 360 and PlayStation 3 video game consoles and the iPhone. The most popular version of the new Xbox sells for $499, while the biggest-selling versions of the PS3 and the iPhone go for $599.

"You see the pictures of the people waiting in line for hours, even overnight," Koenig said.

"Those are the early adopters. To them, it's important to have the latest features. For them, price is not an object."

Electronics companies are keenly aware that early adopters make up only a fraction of all consumers, the analyst said. And for the majority of potential customers, price is an object - which means prices have to eventually come down on those big-ticket items.

"Nobody wants to drop prices, but they do," Koenig said. "All these companies have careful and strategic methodologies to determine when and how much to drop prices."

While the CEA only looks at hardware, the U.S. Bureau of Labor Statistics measures household spending on a wealth of categories that include software and tech-related service fees such as the monthly cable and cell phone bills.

Spending on tech devices and services is holding steady at about 5% of the typical household budget, according to the bureau.

The agency's annual study on consumer spending found that on average, American families in 2005 spent $455 on cell phone service, $154 on Internet access, $519 on cable or other TV services, $33 on video rentals and $45 on video purchases.

While overall tech spending remains fairly flat, spending during key shopping seasons is rising. The National Retail Federation reports that spending on electronic gear is a prime force for the back-to-school and year-end-holiday seasons.

Despite falling prices on items such as plasma TVs, year-end spending on tech products rose 9% last year, which was above the 6% overall increase for retail, according to the association's research.

Last year, 47% of students surveyed by the federation said they planned to buy a computer, cell phone, camera or other gadget. This year, 50% said they expected to buy new gadgets for school, pushing the total seasonal tech spending from $10.5 billion to $12.7 billion.

"When we started tracking this in 2003, students maybe needed a computer," federation spokeswoman Kathy Grannis said. "These days, they need an iPod, a cell phone, a laptop with graphic accelerators and other accessories."
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 PlayStation  U.S. Bureau of Labor Statistics  PlayStation 3  spending  gadgets  trade associations  hard dollars  TV  Consumer Electronics Association  early adopters


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