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Do Millennials Really Pay More for Basics Than Their Parents?

The deck is stacked, the story goes: Millennials pay more for everything, yet they earn less, even when accounting for inflation. This, in turn, means they may delay milestones such as marrying, home buying, or starting families.

If you’re a Millennial, you no doubt feel the squeeze. But is the pressure real or perceived? Millennials certainly confirm their financial anxieties in study after study. At least two-thirds carry at least one form of “long-term” debt, according to PwC research. That percentage rises to more than 80% of college graduates, who, the PwC study states, no longer believe college is the buffer against economic insecurity that it once was.

Feelings are one thing. Facts are another. Do you really face worse prospects than your parents? Let’s take a look at four categories of expense that account for large proportions of adult budgets. We will then compare the impact of these costs for current and past generations. If you’re facing flak from older generations or wondering how your peers’ experience stacks up historically, read onward.

College Tuition

Does it cost more? Yes.

Your college degree is going to take a bigger bite out of your current and future pocketbook than it did for previous generations. If you’ve got parents or grandparents who boast that they paid their college tuition working retail or slinging pizzas, rest assured that those types of jobs won’t likely make the same dent in your college bill.

College costs, in inflation-adjusted dollars, have tripled over the past 30 years, according to College Board data. Students attending public four-year colleges paid the contemporary equivalent of $3,190 per year in tuition in the 1987-1988 school year—but that price would now be $9,970.  That’s a 213% bump. Keep in mind, this is at public colleges. Private colleges have gone up at an even more precipitous rate.

MarketWatch data analysis indicates that the average cost of tuition, room, board, and other college fees—both private and public schools—has risen from $39,643 in 1987, to $103,616 in 2016, a 161% hike. Set against a backdrop where salaries aren’t necessarily rising, Millennial graduates with student loan debt may need more time to pay this debt off.

Not surprisingly, with the rising costs, college access has become easier for the affluent and harder for those who come from families of lower socioeconomic status. Students from wealthy families who enroll in college are five times more likely to graduate than their lower-income peers, according to The Pell Institute’s Indicators of Higher Education Equity in the United States.

There are a few new ways to mitigate these costs. Academic achievers who participate in “Running Start” and other programs where high schoolers take college-level courses may be able to hopscotch over freshman-year requirements. Entering college as a sophomore or junior makes it possible to graduate in less time and with a lower tuition bill. Separately, about a dozen states now offer two years of community college for free, which can help halve the cost of a four-year degree. Of course, these strategies aren’t available to all students or families—but have become more common as education costs keep rising. So yes, Millennials, your college degree costs more than your parents’ did.

Health Care

Does it cost more? Yes.

Millennials, you’re correct in assuming that you face higher health care costs than your parents—and insurance doesn’t go as far for you as it did for prior generations.

Healthcare costs, dollar-adjusted for inflation, increased six-fold between 1970 and 2016. The $355 per person costs typical in 1970 skyrocketed to $10,348 in 2016, according to a Kaiser Family Foundation analysis of National Health Expenditure data from the Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. That $355 bill in 1970 would still only be $1,762 if adjusted to today’s dollars. 

On the plus side, the same Kaiser data indicates that healthcare spending has leveled off (you might need oxygen if it climbs any higher). Also, insurance plans now allow parents to include dependents on a policy until age 26. But that’s slim comfort—especially if your parents can’t afford to include you on their coverage and you’re paying out of pocket. Nowadays, even so-called “catastrophic” or “high-deductible” insurance comes with expensive monthly premiums.

Housing 

Does it cost more? Yes.

Generally speaking, the home you buy or rent will take a bigger bite out of your income than it did for your predecessors. So don’t feel ashamed if you live at home during the launch years of your career, or rent with roommates deeper into adulthood than your parents or older comrades did. While renting a solo apartment or buying a home have long been markers of independence, now they may simply mark the unlocking of a level of wealth that takes longer to build.

Home values are outpacing inflation, which means that the price to buy a home is growing more expensive relative to the general rise in costs consumers face from year to year. While home prices vary widely by market, in dense urban markets buying a home can be extremely expensive relative to the median income in an area.

A Curbed analysis using U.S. Census data comparing the median US home price and median salaries shows that in 1980 it cost 2.7 times the median salary of $17,710 to buy a home, or $47,200. In 2010 it costs about 4.5 times the $49,500 median salary, or $221,200.

Economists including Robert Shiller, author of Irrational Exuberance, have written about the correlation between median income and median home price, noting that when median home price exceeds certain multiples (such as 4x or 5x) owning becomes unaffordable and unsustainable—potentially portending an economic bubble. While every local housing market is different in terms of its affordability relative to salaries paid, the national data speak a truth that owning has become more expensive over time. 

Car Buying

Does it cost more? Yes.

If you need to buy a car it’ll set you back further than it did before. One study, published in Hemmings Auto Journal, indicates that to buy a car now you’d need to work more hours to amass the necessary wages. The publication reviewed how many hours it would take, based on the wages earned by the average “production worker,” to pay for various types of vehicle. In 1965, a new Ford Mustang would require 911 hours of work. By 2013, that same vehicle would require 1,162 hours of work—or 28% more. 

This image was updated on 9/18/18

Cars depreciate rapidly, so the “investment” case for owning a vehicle has always been poor. Still, some of us need cars to conduct business or get to work—especially in areas that lack public transportation.

The counterpoint to this, though, is that attitudes about car ownership are shifting.  

Many Millennials express the view that cars are “commodities” or appliances, rather than important possessions.  The rise of app-based car rental services like ZipCar, Car2Go, and ReachNow and of DIY car-hailing networks such as Uber and Lyft means that there are more flexible ways to access wheels than owning a vehicle outright. For urban dwellers, these solutions may mean owning a car is less a necessity, and that sharing a car through a service and having access to a car on a pay-as-you-go basis makes sense.

Final Thoughts

There’s no doubt that the “package” of adulthood—college education, healthy self-care, a career, a home, and access to transportation—is more complicated now than it was in the past.

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.