The Cost of Living Surge: A Comparative Look at Housing, Cars, and Savings Rates from 1970 to 2022

Housing: Then vs. Now

In 1970, buying a home was a more achievable dream for the median American family. The price of an average home was approximately 2.37 times the median family income at the time. However, this ratio has more than doubled by 2022, with the cost of a home skyrocketing to 5.67 times the median income.

This sharp increase can be partially attributed to market dynamics, such as supply constraints and increased demand in desirable locations. The financial burden has grown heavier, pushing more Americans toward more substantial mortgage debts than younger generations ever had to consider.

The Escalating Costs of Autos

Similarly, the auto market has seen a drastic change. In 1970, an average car cost $3,430, a figure that was relatively manageable within the typical family budget. Fast forward to 2022, and the average price has ballooned to $46,290. This steep rise is nearly double the rate at which median income has increased, which only grew 7.5 times over the same period. The economic pressures of maintaining, insuring, and fueling a car add further financial strain on households.

Savings Rates Across Generations

Savings across different generations saw their own their unique challenges in 2022. According to CNBC, Gen Z managed to save $5,833 on average, slightly behind Millennials at $6,042. Meanwhile, Gen X saved $3,998, with Baby Boomers at $4,498. These numbers suggest a trend where younger generations might be prioritizing savings more than their older counterparts, possibly due to heightened awareness of economic volatility and future uncertainties.

The Impact of Taxes

Taxes also play a significant role in shaping financial outcomes. In 1970, the federal tax bill for a median income of $9,870 stood at 18.5%. By 2022, despite the higher nominal incomes, the tax rate on a median income of $74,580 had slightly decreased to 16%. This reduction in tax rates, while seemingly beneficial, does not offset the increased costs in housing, food, healthcare, and transportation.

Taxes are a pivotal factor in financial planning, with influence impacting earnings, savings, and investment decisions over your entire lifespan. Thoughtful tax planning not only preserves wealth but also serves as a crucial defense against the erosive effects of inflation.

Being an Investor Really Matters

The dramatic financial shifts observed from 1970 to 2022 underscore the critical importance of investing to offset the risks of inflation. As costs continue to escalate at rates that outpace income growth, simply saving money without a plan is not enough.

Thoughtful investing offers a potential path to not only preserve but also grow our standard of living. It can improve financial security, expand access to better healthcare/ education, and afford the financial freedom to pursue personal passions and family/ philanthropic efforts.

Investing matters – a lot.

This piece is general education, not individual advice.