Engel’s Law describes the differences in how people change their spending on different categories of goods and services as their household income increases. This law was formulated by Ernst Engel more than a century ago and remains a valid principle in economics and marketing.
According to Engel’s Law, as a household’s income increases: 1) The share of food spending decreases (even if the absolute amount is greater); 2) The share of housing spending remains relatively constant; and 3) The share of spending on other categories such as transportation, health care, education, and leisure increases. This law is key to income segmentation and forecasting market trends.
