Over the past weekend, I had a long conversation with a man in our community who was nearing retirement age. He felt comfortable about his own coming retirement, but he seemed very pessimistic that his children would ever be ready to retire. “They just don’t know how to save money,” he told me.
I told him that, although I agreed with him that young people should save more, there is also a strong case that it is much more difficult today for a young person to establish themselves financially as he did when he was a young adult.
He looked at me strangely. “What do you mean?” he asked.
So, I laid it out for him, piece by piece. Afterward, it occurred to me that the entire discussion might make for a good post here, particularly with some specific research to back it up.
Real wages Let’s start with income. In 1970, the average wage earner took home $312 per week (in 1982 dollars). In 2004, the average wage earner brought home $277 per week (in 1982 dollars) – and it’s still falling. That means that, once you factor out inflation, the average wage earner in 1970 brought home about 18% more than the average wage earner today.
Home prices Even if you adjust for inflation – and even if you take into account the crash of the housing bubble from 2007 to today – the median price for a home in the United States has gone up more than 50% since 1970. Remember, that number accounts for inflation, so what that number actually means is that the cost of a home requires 50% more of a person’s paycheck than it did in 1970.
Education prices The cost index of an average undergraduate education since 1970 drastically outpaces the growth of the Consumer Price Index. In short, disregarding inflation, the cost of an undergraduate degree today is roughly 30% higher than it was in 1970.
Other essentials In order to compete in today’s workforce, a young person often must have items – paid for out of their own pocket – that weren’t needed in 1970, including a cell phone, a computer, and home internet access. Often, when searching for work, it becomes very difficult for a young person to compete without these extra expenses.
So, to summarize, in order to have housing and an education comparable to what a young person had in 1970, they must spend 50% more on housing, spend 30% more on education, and do it all while earning about 18% less money. That doesn’t even include the extra expenses needed to compete.
I look at my own parents for an example. My parents purchased the house I grew up in for $20,000 – and that included seven acres of land. At the time, that was approximately what my father earned in a year. Today, if I were to purchase a similarly-sized house with seven acres of land, I would be spending well over $100,000 – significantly more than an annual salary.
My parents were also able to find good work without the cost of a college education. Today, the jobs they both had would be completely unavailable to someone if they did not have a college education, putting significantly more expense on the back of a young person today.
“Get tough!” This isn’t meant to be an excuse for people of my generation not living up to their potential. Instead, it’s an encouragement for everyone to not obsess over comparing the success of young people today to the things that young people in the past had at a similar age.
Simply put, things that were quite possible for a 25 year old in 1970 – owning their own home, having a fully-paid-for education, having a high-paying job – are much more difficult for a 25 year old today.
It’s not so much a matter of getting tough. It’s more of a matter of recognizing that comparing the way things were when you were younger to the way things are now for a younger person isn’t really a valid comparison.
Rather than focusing on results, look for signs of progress and for the status of the journey as a whole. It’s not even remotely fair to compare results – the income you have, the house you have, the education you’ve paid for – between eras, so instead focus on positive steps in the right direction.