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Allocation of Household Expenditures

The allocation of household expenditures forms an important part of our analysis in wrongful death cases, which is done in several steps. In essence, estimates rely upon a comparison of projections of earnings and of consumption patterns that may have existed in the family, but for the death and given the death. (Household expenditure allocations also form an integral part of our analysis in cases where “lost-years” deductions need to be estimated. See the section "Earnings in the Lost Years" for a brief discussion of this topic)

The process of estimating losses of dependency in wrongful death cases begins with the estimation of each family members’ contributions to the family’s gross incomes. Given the uncertainties regarding future earnings, we often provide estimates that are associated with two or more alternate assumed levels of gross incomes. The second step is to reduce the estimates of gross family incomes for taxes and other payroll deductions, to arrive at estimates of net or disposable family incomes. The third step is to divide estimates of disposable family incomes into estimates of expenditures by type of good or service purchased for the family’s consumption. In most instances, we rely upon Statistics Canada’s Survey of Household Spending (SHS) (1) to derive estimates of the average mix of expenditures made by the family unit, for a comprehensive list of categories of goods and services (2).

Estimates of the distribution of expenditures by type of good or service purchased are divided into estimates of “shared use” and “exclusive use” goods and services. These allocations are based on (necessarily) subjective assumptions about the division of the benefits derived from each category of expenditure among the family members

Examples of exclusive-use goods are food and clothing. The benefit an individual derives from the food she or he consumes, for example, is in direct proportion to the amount of money spent on food by or on behalf of that individual. In addition, whether or not exclusive goods are consumed by one individual does not directly affect the well-being of other individuals. Thus, expenditure on exclusive-use goods may be divided on a pro rata basis among all family members, or by something similar to it.

Examples of shared or common goods are the family home and associated costs of heating, maintenance and property tax. These items cannot be divided to exclude other family members, and their consumption cannot be reduced without directly affecting other individuals in the same household. For example, if any one household member decided that s/he no longer wished to be a consumer of heating services, then all other members would have to terminate their consumption of heating services as well.

The third class of goods are those which have both shared and exclusive uses, and might therefore be called “mixed” goods. The family car is an example: it may be used by an individual family member alone, but it can also be shared to go on social outings or trips. Of course, all family members benefit if the family car provides an employed family member with access to employment, or to shopping or services.

It is important to note that, even though each individual member of the family consumes exclusively a comparatively small portion of the household’s total disposable income, all family members in effect also enjoy the benefit of shared expenditures, since shared goods are consumed by all family members together. Likewise, it is important to keep in mind that each family member’s exclusive consumption share is a share not of his or her own disposable income but, rather, a share of the combined disposable income of all family members.

Our consumption estimates are derived from SHS data on married-couple and single-parent families’ expenditure patterns. (In some special cases, we may rely on expenditure patterns for single-person households based on SHS data, or on data published by the Social Planning and Research Council of BC.)

1. The SHS is the successor to the earlier Family Expenditure Survey (FAMEX).

2. In some cases, information on the particular family’s budget or expenditure details may be available to modify or to replace the SHS data in our analysis. A copy of our form can be found here.