Cost Of Living Today versus 30 years ago

[boomhauer]

I was just having this conversation with some of my elders at work. I'm 29.

I swear I have seen stats where the cost of living and rate of pay is not relative 30 years ago to what it is today.

In other words, if a house costs 10x what it cost 30 years ago, the average salary today isn't 10x what it was 30 years ago. Know what I mean? basically, it's harder for this generation to pay bills, own a house and save money than it was for my parents.

Would anyone say that's true, false, or what?

 

[DawnCt1]

I had actually heard a discussion based on some study that said that a house is more affordable, per square foot, than it was 30 years ago. My parents only paid $13,500 for their house, however, they both worked and didn't make that much. Interest rates were around 4%. It was a straight ranch, 3 bedrooms and 1 and 1/2 baths. Not much of a house by today's standards but very typical of its day. When we first got married, we bought a console tv. It was 25 in. and like most tv's of that time, it was a piece of furniture. We paid over $500. No one would pay that much for a 25 in tv today. When I was in high school, minimum wage was $1.65 per hour. Gas was 33 cents a gallon. Today, most high school students make $8 and gas until recently was less than $2 per gal. It is sort of relative. Also consider the price of bread. I remember paying 29 cents a loaf. That sounds cheap but consider the hourly wage. What is the price of bread ($1 or less) compared to the hourly minimum wage today. I think part of the expense of living today is the tax burden, local, state and federal.

 

[boomhauer]

A guy at work for example said, 30 years ago, he cleared about $65 a week, and his rent was $50 a month.

It takes 2 entire paychecks for me to cover rent.

 

[dvcgirl]

I was just having this conversation with some of my elders at work. I'm 29.

I swear I have seen stats where the cost of living and rate of pay is not relative 30 years ago to what it is today.

In other words, if a house costs 10x what it cost 30 years ago, the average salary today isn't 10x what it was 30 years ago. Know what I mean? basically, it's harder for this generation to pay bills, own a house and save money than it was for my parents.

Would anyone say that's true, false, or what?

I think that it may be difficult for the younger generation to keep up because 30 years ago there were far less luxuries in peoples' lives. There were no cell phones bills. Nobody had a high speed internet bill. There were 13 channels on TV, not 899 channels with pay per view and NFL Ticket packages. A blackberry was something you ate, not yet another high tech toy with an additional monthly bill. The radio was free and yeah, it had some commercials. Now we're so busy we'll pay $16 a month to avoid commercials.

And....there was no such thing as easy credit. Today, people are stuggling because we (the nation..not me) are carrying billions and billions of dollars in CC debt. The average American is now carrying a $9,500 balance on the Credit Cards. We as a nation have a zero savings rate. The lowest since the Great Depression. We have become a nation of SPENDERS, who expect to live the good life. Whether we can afford it or not is of no consequence.

Thirty years ago you sat in front of a banker when you applied for a mortgage. You brought a pile of paperwork with you to prove that you could actually afford the house you were buying. Now you go to buyaMcMansion.com, throw some numbers in a calculator and it will tell you that you can afford a monstrous house (that you probably can't afford).

Thirty years ago the only people who stayed at the three resorts at Walt Disney World were doing pretty well financially. And they paid cash to stay there. Everyone else stayed at the Days Inn out on 192. Think that's the case today?

Thirty years ago only the downright wealthy drove a Mercedes. Now? Heh, look around. They are everywhere, along with Lexuses, BMWs, Caddys, Lincoln Navigators, on and on and on. All very expensive automobiles. And a whole lot of them are leased, or purchased with 6-7-8 year finance deals.

The reason it's tougher to make ends meet today is because Americans are spending so much more of their income on luxuries that didn't even exist thirty years ago....end of story.

 

[Tigger_Magic]

It's not exactly fair to compare today's costs/salaries with those of 20, 30 or more years ago without factoring current dollars vs. constant (or real) dollars.

Current dollars is a term describing income in the year in which a person, household, or family receives it. For example, the income someone received in 2000 unadjusted for inflation is in current dollars.

Constant or real dollars are terms describing income after adjustment for inflation. The Dictionary of Business and Economics defines constant dollar values and real income as shown below.

Constant-dollar value (also called real-dollar value) is a value expressed in dollars adjusted for purchasing power. Constant-dollar values represent an effort to remove the effects of price changes from statistical series reported in dollar terms. The result is a series as it would presumably exist if prices were the same throughout as they were in the base year-in other words, as if the dollar had constant purchasing power.
Real Income. The purchasing power of the income of an individual, group, or nation, computed by adjusting money income to price changes. A comparison between incomes earned during 1970 and 1980, for example, would be pointless unless 1970 and 1980 price levels were identical. Using a price index showing, for example, that average consumer prices increased by 50 percent between those years, it becomes clear that $1,000 in 1980 bought what $667 bought in 1970. Thus, even if total income actually doubled, real income would double only if prices remained constant.

 

[Crankyshank]

I read somewhere that the cost of living on average increases 3.5% every year. don't ask me to provide the link because I don't remember where exactly I found that reference- probably money magazine. If that is indeed the case, Few people I know in this area have received raises to meet or even exceed that jump.

I honestly don't think there's any way we can accurately compare COL 30 yrs ago and COL now. Yes income hasn't risen to mean the cost of living nowadays for many people, but there are more "things" people need to get by now that obviously cost more and also drive up utility bills. Also more people own homes nowadays and even though rents/mortages are higher but homes are larger, more efficient, and the interest rates are lower.

 

[froglady]

A guy at work for example said, 30 years ago, he cleared about $65 a week, and his rent was $50 a month.

It takes 2 entire paychecks for me to cover rent.

It depends upon where you lived. 35 years ago, I made $84/week (working an off shift) and my rent was $150. I babysat on the side to make ends meet.

When DH & I lived in Toronto in 1981, he took home $1100/month(Canadian), and our rent was $550 for a 1 BR apt.

 

[mickeyfan2]

I think the basic needs are cheaper today but we have turned luxuries from the pasts in to need today. For example, they use to have one phone and one TV, now we have a phone and in almost every room and cell phones.

 

[ckmommy]

I think that it may be difficult for the younger generation to keep up because 30 years ago there were far less luxuries in peoples' lives. There were no cell phones bills. Nobody had a high speed internet bill. There were 13 channels on TV, not 899 channels with pay per view and NFL Ticket packages. A blackberry was something you ate, not yet another high tech toy with an additional monthly bill. The radio was free and yeah, it had some commercials. Now we're so busy we'll pay $16 a month to avoid commercials.

And....there was no such thing as easy credit. Today, people are stuggling because we (the nation..not me) are carrying billions and billions of dollars in CC debt. The average American is now carrying a $9,500 balance on the Credit Cards. We as a nation have a zero savings rate. The lowest since the Great Depression. We have become a nation of SPENDERS, who expect to live the good life. Whether we can afford it or not is of no consequence.

Thirty years ago you sat in front of a banker when you applied for a mortgage. You brought a pile of paperwork with you to prove that you could actually afford the house you were buying. Now you go to buyaMcMansion.com, throw some numbers in a calculator and it will tell you that you can afford a monstrous house (that you probably can't afford).

Thirty years ago the only people who stayed at the three resorts at Walt Disney World were doing pretty well financially. And they paid cash to stay there. Everyone else stayed at the Days Inn out on 192. Think that's the case today?

Thirty years ago only the downright wealthy drove a Mercedes. Now? Heh, look around. They are everywhere, along with Lexuses, BMWs, Caddys, Lincoln Navigators, on and on and on. All very expensive automobiles. And a whole lot of them are leased, or purchased with 6-7-8 year finance deals.

The reason it's tougher to make ends meet today is because Americans are spending so much more of their income on luxuries that didn't even exist thirty years ago....end of story.

You forgot to mention that we (as a nation) go out to eat at least 3x per week. I am 32, and I remember going out to eat on Friday's maybe twice a month and McDonald's was a very special treat.

 

[bcvillastwo]

Over the years I've participated in these discussions myself. I am about to turn 54 so I'm one of those elders that the OP is talking about. I can reflect back to when I was 29 had a wife and 3 young children and was in my 2nd year of working after graduating from college with a degree in accounting. I wasn't making very much money and was struggling make ends meet.

Now fast forward to the present I am doing much better financially and my earnings have outpaced inflation nicely. The OP suggests that "the cost of living and rate of pay is not relative 30 years ago to what it is today."

The OP went on to say

if a house costs 10x what it cost 30 years ago, the average salary today isn't 10x what it was 30 years ago. Know what I mean? basically, it's harder for this generation to pay bills, own a house and save money than it was for my parents.

Lets try using one of the online inflation calculators. http://http://www.halfhill.com/inflation.html

If this calculator is correct a salary of $50,000 today would convert to a salary of $13,948 in 1976. Now what would a home cost in 1976 compared to 2006. Home prices vary from location to location. I've picked the midwest and as of the 3rd quarter of 2005 the median home price in the midwest is said to be $173,300. Factoring this into the calculator the value of a $173,300 house in the midwest in 1976 would be $48,343.

Based on this information, it seems that a $50,000 income in 2006 and a $13,948 income in 1976 has about the same purchasing power if you are buying a home. I say this based on dividing $50,000 into $173,300 to get 3.466 in 2006 and dividing $13,948 into $48,343 to get 3.465 for 1976.

I admit my analysis may be a bit crude but I the overall point is that things probably haven't changed much over the years. It's difficult for young people to get started, they want everything now, and they are frustrated that they can't have everything now. But, as time goes on, in many many cases their wages increase beyond the inflation rate and by the time they are in their early to mid 50's they can have many of the things that they couldn't have in their late 20's.

It's possible my calucations are off, it's also possible my assumptions are incorrect. If so, please advise and I will rethink my conclusion.

 

[luvwinnie]

You forgot to mention that we (as a nation) go out to eat at least 3x per week. I am 32, and I remember going out to eat on Friday's maybe twice a month and McDonald's was a very special treat.

You are right. My parents RARELY ate out. Maybe we did once per month. But DH and I don't eat out much either. We do get takeout though!

 

[Galahad]

I think that it may be difficult for the younger generation to keep up because 30 years ago there were far less luxuries in peoples' lives. There were no cell phones bills. Nobody had a high speed internet bill. There were 13 channels on TV, not 899 channels with pay per view and NFL Ticket packages. A blackberry was something you ate, not yet another high tech toy with an additional monthly bill. The radio was free and yeah, it had some commercials. Now we're so busy we'll pay $16 a month to avoid commercials.

And....there was no such thing as easy credit. .........

Bingo!

 

[Galahad]

It depends upon where you lived. 35 years ago, I made $84/week (working an off shift) and my rent was $150. I babysat on the side to make ends meet.

When DH & I lived in Toronto in 1981, he took home $1100/month(Canadian), and our rent was $550 for a 1 BR apt.

Yep. My first post-college, professional, job (in 1977) paid about $850 a month and my rent was $200 a month.

 

[dvcgirl]

You forgot to mention that we (as a nation) go out to eat at least 3x per week. I am 32, and I remember going out to eat on Friday's maybe twice a month and McDonald's was a very special treat.

Very true! I am 38 and it was the exact same thing in my family. I just heard a report that nearly 50% of every dollar spent on food is spent at a restaurant and not at a grocery store.....

The other place where people blow the budget these days is on their kids. Soooo many activities and soooo much money spent on things like dance, karate, music lessons, sports teams, cheerleading....on and on. And every kid over 10 years old seems to have a cell phone.

We are a nation out of control....

 

[Christine]

I remember when I was just out of school and me and two of my friends wanted to get an apartment together (this was the 80s). The three of us had to "pitch in" to get ONE PHONE.

Can you imagine three 20 years olds doing this today. Not only would they probably have the landline, but they would each "need" their cell phone.

 

[boomhauer]

How much was heating/oil, electricity 30 years ago?

 

[chobie]

We pay much bigger percentage of our income for health care then our parents paid. My parents had 5 kids with no health insurance, a moderate income and paid out of pocket for all our medical expenses; it was not a big deal for them. They did not think twice about the cost of an emergency room visit when one of us was injured.

 

[Christine]

We pay much bigger percentage of our income for health care then our parents paid. My parents had 5 kids with no health insurance, a moderate income and paid out of pocket for all our medical expenses; it was not a big deal for them. They did not think twice about the cost of an emergency room visit when one of us was injured.

True! My parents always had health insurance and it was paid for 100% by their employers.

 

[bcvillastwo]

I agree, about the health care costs. It's pretty clear that health care costs have risen greatly and are rising.

 

[dvcgirl]

A guy at work for example said, 30 years ago, he cleared about $65 a week, and his rent was $50 a month.

It takes 2 entire paychecks for me to cover rent.

And this is the kind of ratio that will get you into financial trouble. Paying 50% of your income just on rent... There's a very good book that I would recommend to you called All Your Worth, The Ultimate Lifetime Money Plan written by Elizabeth Warren and her daughter Amy Warren Tyagi.

In that book they talk *exactly* about what you brought up. How were people able to have a home, raise a family and save for retirement just 30 years ago when people are struggling so much with it now. They looked at that generation from the past and studied where their money went. And what they found was very interesting.

They found that no more than 50% of your income should go to your "Must Haves" in life. That would be your rent/mortgage, food, utilities, insurance of all sorts, transportation and clothing. Your Must Haves are the things thath you need to sustain life.

20% of your income should be going to savings. This is for retirement, college for the kids, and your "dreams"....maybe buying that sailboat at 50...those types of things.

The rest, 30% is what you get to cover your "Wants". That's where we put the iPod, the trip to Disney World and the Powerbook. That's also where we put the cell phone and the monthly bill that goes with it. A cell phone isn't a must have....it's a want. Same thing with the $100 monthly satellite bill. It is a want and not a need. Throw in Sirius Radio, OnStar, and any other monthly bill like those. That would also be where you'd put Lucky Jeans because that's a huge splurge and not a need. And it's also where you'd put the excess between say a lease payment on a BMW vs. a Toyota Corolla. And it is also where all those bills from TGIF, Panera, Starbucks, Chili's, Ruby Tuesdays, the Olive Garden and the like go too .

I really believe that if you can get your ratios lined up like these authors suggest that you'll succeed financially.