Traditional pensions have largely been replaced by 401(k) accounts and individual retirement accounts, and the costs of housing and education continue to rise compared to even just 20 years ago. It might be easier today to keep track of your money and plan where it goes, but that doesn’t mean it’s easier to pay for basic expenses.
We decided to take a look at five common aspects of life to see the ways the cost of living has changed and how this has affected American household budgets.
Paying your monthly mortgage has become more difficult over the years, with the average cost of a new house going from $19,300 in 1963 to more than $150,000 today. This big jump has made saving enough money for a down payment often too difficult for many people, keeping dreams of owning a home out of reach.
Unfortunately, the rental market isn’t much better. One rule of thumb about housing costs is that they should be less than 30 percent of your budget. The trouble is that in many major cities, this percentage can run much higher. New York and San Francisco, in particular, have become known for average rents consuming 40 percent or more of a household’s monthly budget, leaving much less to go toward other expenses.
Retirement and savings
Company pensions were common in past decades, and while a few careers, such as those in the military, may still offer them, they are primarily a thing of the past. Decades ago, many people depended on their pensions and Social Security to cover them in retirement, but for many, this is simply no longer possible.
Other societal and economic changes are challenging modern retirement costs, leaving the responsibility of saving to the individual. Unfortunately, few are meeting this challenge. Even with tax-incentivized saving options such as Roth IRAs, nearly one-third of U.S. households close to retirement have no retirement savings. It seems that for many Americans, savings have lost a place in their budgets.
The rising costs of modern higher education are well-known, but even when considering the moderate option of tuition at a public university, the increases in cost are still shocking. Tuition at a public university, excluding housing costs, rose from about $1,200 in the mid-1970s to about $3,000 in the mid-1980s, and then to around $5,000 in the mid-1990s.
Today, the average tuition at a public college is more than $10,000 a year, with significant increases seen in certain states. To cover these costs, a record number of students are turning to loans, which may weigh down their budgets for years to come. The Internet, however, makes it easier for students to seek out new scholarships opportunities and do extra research to compare the schools they want to attend, giving them more of a chance to find the best deal for their financial situation.
Lifestyle, health, and medical expenses
The consumer price index is nearly 500 percent higher today than it was just 40 years ago, meaning that an average product from the grocery store costs five times more than it did in the early-1970s. Considering that in the same time period this increase outpaced inflation by one-third, it’s no wonder that the cost to maintain an average household has gone up drastically over the decades.
Medical costs, including health insurance premiums, also increased significantly in the same period. Once commonly offered for free by employers as a job benefit, health insurance is now something that many workers struggle to afford. With mandates implemented by the Affordable Care Act, the annual penalty for not having health insurance in 2016 is expected to be nearly $700 for some individuals.
When you factor in the steep costs of education, housing, and health and medical care, it is more difficult to afford basic living expenses in 2015 than in years past.
Just 40 years ago, a road trip to the Grand Canyon may have only cost the money for gas, food, and a tent, but modern vacations tend to entail more expenses. While vacations may sound like a luxury expense, they remain an important part of the average household budget.
However, not every job offers paid vacation time, adding to the eventual cost of a trip. Fortunately, finding deals is easier than ever, thanks to airline miles and vacation home rental services. And the advent of freelance and work-from-home careers may allow people more freedom with both their hours and vacation plans.
The average household budget certainly seems tighter than it has been in past decades, but there are also ample opportunities today to learn more about managing your money. Learning more about how expenses have changed over the years may not eliminate your bills, but it may help identify ways in which you can weave some new solutions into your budget over time.
Dustin Pellegrini is a senior web producer and writer at Think Glink Media, where he specializes in reporting on identity protection and credit. He studied writing and visual media at Columbia College Chicago.
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