I wondered where your title was going with this. Point well made, and as a real estate appraiser (day job) in Los Angeles, I see daily the object of desire - a 1930s 2BR/1BA 841 square foot house on a 5200 sf lot, sold for $1,200,000. The owners parents bought it in 1970 for $25,000. I get the time value of money, but did $25K feel as far away then as $1.2M does today? The argument you make is attractive, in that we should live in the moment. What with the state of the world today, maybe that is the answer?
I looked up the prices of houses in the Fairfax, VA area back when they were built - older ones from the 50s. These were new-construction at the time, and adjusted for inflation they were often less than $200,000. Some much less. I suppose salaries have gone up as well, but the same houses, now 70 years old, sell for 600-800k. It was never cheap, but there are so many anecdotes about a family of four owning a home, having one income, sending kids to college - that all had to have seemed more within reach back then.
Construction starts are not keeping pace with population gains, and increasing income and wealth inequality allows the wealthy to increase their overbids for larger spaces.
For the Great Gen, federal mortgage programs helped to drive demand, while housing supply was not suppressed as much by local regs. Silent Gen enjoyed the GI Bill, and many used that program to make first home purchases. There is no question that these policies favor older generations, and each successive generation is more challenged in generating wealth because asset prices keep increasing.
But the avocado is not the avocado. The avocado is the automobile. This is driven by intuition, and not data, but I believe Americans are spending more disposable income on automobiles, which are increasingly expensive because of entertainment and comfort features, heavier bodies, higher performance engines, and less fuel efficiency. What is backed by the day is the ratio of cars to workers, which had increased with with generations. Great Gen and Silent Gen included many one-car households. Two- and three-car households increased with each generation. I suspect we are more leveraged on our automobiles, as well, so we are paying more debt service, and paying more points over prime on consumer credit in general.
What's different is that Americans don't buy the same Camrys anymore. They buy trucks and SUVs, which are, and always were, higher in average price. And more expensive to run, as well. Both for fuel, but also for maintenance and longevity. So, with a higher percentage of new cars sold being trucks and SUVs, the average price of all passenger vehicles increases.
I concur with your suspicion. I regularly see brand new high-end luxury vehicles owned by tenants in some of the worst rentals/location in the LA area. The cars are immaculate, the rest of their lives look less so. Not in a racial sense, I see the same behavior in poor white areas, poor black areas, poor brown areas. It feels like an American thing.
That would seem to confirm one of Addison's points in the post: when people find that they are out of reach of bigger luxuries (like owning a home) no matter what they do, they (somewhat rationally) focus on more accessible luxuries (like a shiny new car).
It doesn't make financial sense, strictly speaking, but it's a way to maximize consumer utility: you will get X% happier from having a nice ride (which, being a worker of modest means, likely with a long commute, you will spend a lot of time in) than from waiting until you're dead to be able to afford a house in one of the most unaffordable housing markets in the country.
You see a similar logic with "self-medicating" for stress, fatigue, disease, disability, etc. with tobacco or alcohol for the uninsured and harried working poor. Is it the best way to salve your problems? No. But can you afford the best way? Also no. So, that drag of the cigarette that is giving you lung cancer and shortening your life by eight years, on average, is also going to help you get through one more shift. And right now, that's what matters.
Perhaps tangential, but I wonder if there's something to the way in which our culture has shifted away from thinking of "virtue" (qualities important for their own sake) to something more like "merit" which often presents/aspires to the same, but in practice seems inescapably tied to situational things like circumstance and privilege.
For instance, in one sense my wife and I are the picture of "sound financial literacy": we both have excellent professional jobs, healthy emergency funds, savings, retirement accounts, and we waited to buy a house until we could put 20% down in a major East Coast metro. And while proportionally we spend less on "splurge" expenses than many others do, that's not a factor of inherent frugality or stoicism, it's just because our combined incomes are high enough that we don't have to worry about dropping several hundred dollars in the first hour of Brandon Sanderson's kickstarter for his 4 surprise novels.
For someone *not* in such a privileged position, the societal benefits of showing the underlying virtues is non-existent or even negative, so perhaps that's where the disconnect arises? Virtue is valuable *for its own sake* but when society penalizes it in practice while hailing "merit" that is at least in plurality really "good fortune" of course you're gonna end up with really weird extrapolations...
This is an excellent post. I'll add my n=1 anecdotal experience to your assessment. My (much older) dad grew up in the Great Depression and went to college on the GI bill. He bought a modest bungalow in the DC suburbs before he went to college to house his first family he'd had with his high school sweetheart. They drove around in his singular, but brand-new Buick.
Like most young men of his generation making very little in the much-healthier but still low-paid field of journalism, he wasn't exactly flush. He didn't eat avocado toast or wagyu beef. But he could still afford the whole package of stay-at-home wife, kids, house, and new car in his mid-20s in a way that I, his son (born into the upper-middle class with a very expensive university education and much higher earning potential doubled with my similarly higher-earning partner), could never afford a half-century later in the same metro area. Getting married? Kids!? New car!?!? An actual house!?!?!? Now, we like to castigate ourselves and compare our debased morals with the thrift and grit of a Great Depression baby like Dad. And being a modest daily spender, combined with juicing the newspaper expense account for meals and not having any student loans, certainly helped. But more than that, it was just down to everything else fundamental just being radically less expensive.
I can't complain too much. Because I do have all those American Dream-type things now. But it didn't happen for me for another decade in my life, in my mid-30s. And only really because I left the United States and live in a country where having the American Dream is far more accessible. And I found that it's not just home price inflation and student loan debt servicing that blocks access to my parents' late 20th Century middle-class life: It's the cost of healthcare, childcare, transit, etc. I've tallied up the latter line items and that would literally run our family $50K extra for the first 5 years of my son's life if we were to move back to the US tomorrow. Even now, with a dual-earner household of two higher-paid tech workers, I just couldn't afford the life my dad could afford at age 28. And I really can't afford my own childhood--the life that we all thought was a little middlebrow and crummy when I was a kid!
Meanwhile, most of my peers and my brother back home will maybe just never afford any of it. Ever. So, instead, they'll enjoy the hedonic pleasures of Ethiopian food and travel to Costa Rica instead of the stability of owning a home or the subtle transcendence of having a family. The child-free, HOA-avoiding, drunken-brunch crowd among my cohort pity my lack of freedom. But maybe they secretly despair of ever "adulting." So, I accept their professions of pity in stride and play along bemoaning the pains of parenthood and the lost joys of unfettered individualism.
This isn't even just a problem for the middle-middle class or the lower tiers of the upper-middle-class. I even have a few friends who make $300K+ (outright rich, in my book) and still can't afford to buy a modest house in their very expensive local real estate market! That's not just annoying wealthy people cosplaying as middle-class for sympathy and to avoid critique: the numbers just don't add up for them in places like New York City, LA, or San Francisco.
To bring this full-circle: I have another quite financially comfortable friend who bought a house just a block away from the house where I was born on Capitol Hill, SE DC. That, my parent's old house, a Victorian "with good bones" (and regrettable surroundings), they bought in the late 1970s for $80K, shortly after they first met. It now sells for ...$3.5 MILLION! My friend's smaller, similarly-dilapidated Victorian "starter home" nearby cost her a cool $1.3M. She will rent it out for a profit for a few years before moving in, to help defer the cost, which is at least less than she'd pay in the Bay Area. Having to buy back my childhood home for perhaps 20x what my parents paid for it is a pretty neat metaphor for all this.
I tend to look at intergenerational economics from the other side. How many Boomers are able to retire based on savings, investments, and pension plans? Statistically, there's a short list of "haves" and a long long long list of "have nots." The average Boomer has a mere $56K in retirement savings. That's not going to cut it. Municipal and state pension plans (to the extent they exist anymore) are seriously underfunded and just can't pay out as expected.
As a kid in Jersey I used to do chores for locals in one of the many retirement villages in the area. Cleaning, gardening, etc. The old people I worked for in the early 1980s belonged to the GI generation. They paid cash for their retirement bungalows and lived comfortable but modest lives. They often died and left large sums to their children and grandchildren. In sharp contrast, the current crop of retirees leverages up with mortgages when they're already north of 65 and then tap the equity in those homes to put in granite counters and fancy appliances. They will die with negative equity.
Don't forget the life-expectancy factor: Life expectancy in 1955 was a full 10 years lower than it was in 2015. Another way of saying that is that the average life expectancy in 1955 was the retirement age: 65 years!
So, of course you didn't spend much later in life. Because there wasn't much, if any, left!
Plus, there wasn't much in the way of life-saving interventions decades ago, either. And those are the things that both extend life, but also eat up finances during that (artificially extended) lifespan.
Actually the life expectancy, if you lived to be 65 at all (and didn't die from a childhood disease or from some bacterial infection like tuberculosis as an adult) was not much lower, only rose by about 4 years since 1950. The bigger difference is now you get more quality of life with hip or knee surgeries, whereas back then most people with bum knees or hips just had to accept it.
There is a separate issue with Social Security not having enough funds because there used to be 4 contributors for each retiree half a century ago, and no it is closer to a 2 to 1 ratio because people just aren't having enough kids to keep population stable (immigration makes up for that, but just barely).
Actuarial charts are very clear. The average American man lives to be about 75-ish. Women about 81 +/-. But there are those who drop dead at 54 and those who live to be 109. It's better to plan and save for the 109 just in case. But most retirees have a de facto budget for 54.
Thank you and kudos on year one. I share your articles frequently. You need to speak at an APA conference (local, state or national!) - You'd be good. - Tony
I wondered where your title was going with this. Point well made, and as a real estate appraiser (day job) in Los Angeles, I see daily the object of desire - a 1930s 2BR/1BA 841 square foot house on a 5200 sf lot, sold for $1,200,000. The owners parents bought it in 1970 for $25,000. I get the time value of money, but did $25K feel as far away then as $1.2M does today? The argument you make is attractive, in that we should live in the moment. What with the state of the world today, maybe that is the answer?
thanks
Ric
I looked up the prices of houses in the Fairfax, VA area back when they were built - older ones from the 50s. These were new-construction at the time, and adjusted for inflation they were often less than $200,000. Some much less. I suppose salaries have gone up as well, but the same houses, now 70 years old, sell for 600-800k. It was never cheap, but there are so many anecdotes about a family of four owning a home, having one income, sending kids to college - that all had to have seemed more within reach back then.
Construction starts are not keeping pace with population gains, and increasing income and wealth inequality allows the wealthy to increase their overbids for larger spaces.
For the Great Gen, federal mortgage programs helped to drive demand, while housing supply was not suppressed as much by local regs. Silent Gen enjoyed the GI Bill, and many used that program to make first home purchases. There is no question that these policies favor older generations, and each successive generation is more challenged in generating wealth because asset prices keep increasing.
But the avocado is not the avocado. The avocado is the automobile. This is driven by intuition, and not data, but I believe Americans are spending more disposable income on automobiles, which are increasingly expensive because of entertainment and comfort features, heavier bodies, higher performance engines, and less fuel efficiency. What is backed by the day is the ratio of cars to workers, which had increased with with generations. Great Gen and Silent Gen included many one-car households. Two- and three-car households increased with each generation. I suspect we are more leveraged on our automobiles, as well, so we are paying more debt service, and paying more points over prime on consumer credit in general.
You're onto something, but focused on the wrong driver of average automobile price inflation. It's not all the cool, premium features, which have gone from optional to standard. The same vehicle models (with more loaded features) are actually cheaper in real terms over time (or at least were back in 2017): https://www.washingtonpost.com/cars/have-cars-actually-gotten-more-expensive-over-time/2017/03/13/5c5b9d30-081b-11e7-bd19-fd3afa0f7e2a_story.html
What's different is that Americans don't buy the same Camrys anymore. They buy trucks and SUVs, which are, and always were, higher in average price. And more expensive to run, as well. Both for fuel, but also for maintenance and longevity. So, with a higher percentage of new cars sold being trucks and SUVs, the average price of all passenger vehicles increases.
I concur with your suspicion. I regularly see brand new high-end luxury vehicles owned by tenants in some of the worst rentals/location in the LA area. The cars are immaculate, the rest of their lives look less so. Not in a racial sense, I see the same behavior in poor white areas, poor black areas, poor brown areas. It feels like an American thing.
That would seem to confirm one of Addison's points in the post: when people find that they are out of reach of bigger luxuries (like owning a home) no matter what they do, they (somewhat rationally) focus on more accessible luxuries (like a shiny new car).
It doesn't make financial sense, strictly speaking, but it's a way to maximize consumer utility: you will get X% happier from having a nice ride (which, being a worker of modest means, likely with a long commute, you will spend a lot of time in) than from waiting until you're dead to be able to afford a house in one of the most unaffordable housing markets in the country.
You see a similar logic with "self-medicating" for stress, fatigue, disease, disability, etc. with tobacco or alcohol for the uninsured and harried working poor. Is it the best way to salve your problems? No. But can you afford the best way? Also no. So, that drag of the cigarette that is giving you lung cancer and shortening your life by eight years, on average, is also going to help you get through one more shift. And right now, that's what matters.
Perhaps tangential, but I wonder if there's something to the way in which our culture has shifted away from thinking of "virtue" (qualities important for their own sake) to something more like "merit" which often presents/aspires to the same, but in practice seems inescapably tied to situational things like circumstance and privilege.
For instance, in one sense my wife and I are the picture of "sound financial literacy": we both have excellent professional jobs, healthy emergency funds, savings, retirement accounts, and we waited to buy a house until we could put 20% down in a major East Coast metro. And while proportionally we spend less on "splurge" expenses than many others do, that's not a factor of inherent frugality or stoicism, it's just because our combined incomes are high enough that we don't have to worry about dropping several hundred dollars in the first hour of Brandon Sanderson's kickstarter for his 4 surprise novels.
For someone *not* in such a privileged position, the societal benefits of showing the underlying virtues is non-existent or even negative, so perhaps that's where the disconnect arises? Virtue is valuable *for its own sake* but when society penalizes it in practice while hailing "merit" that is at least in plurality really "good fortune" of course you're gonna end up with really weird extrapolations...
This is an excellent post. I'll add my n=1 anecdotal experience to your assessment. My (much older) dad grew up in the Great Depression and went to college on the GI bill. He bought a modest bungalow in the DC suburbs before he went to college to house his first family he'd had with his high school sweetheart. They drove around in his singular, but brand-new Buick.
Like most young men of his generation making very little in the much-healthier but still low-paid field of journalism, he wasn't exactly flush. He didn't eat avocado toast or wagyu beef. But he could still afford the whole package of stay-at-home wife, kids, house, and new car in his mid-20s in a way that I, his son (born into the upper-middle class with a very expensive university education and much higher earning potential doubled with my similarly higher-earning partner), could never afford a half-century later in the same metro area. Getting married? Kids!? New car!?!? An actual house!?!?!? Now, we like to castigate ourselves and compare our debased morals with the thrift and grit of a Great Depression baby like Dad. And being a modest daily spender, combined with juicing the newspaper expense account for meals and not having any student loans, certainly helped. But more than that, it was just down to everything else fundamental just being radically less expensive.
I can't complain too much. Because I do have all those American Dream-type things now. But it didn't happen for me for another decade in my life, in my mid-30s. And only really because I left the United States and live in a country where having the American Dream is far more accessible. And I found that it's not just home price inflation and student loan debt servicing that blocks access to my parents' late 20th Century middle-class life: It's the cost of healthcare, childcare, transit, etc. I've tallied up the latter line items and that would literally run our family $50K extra for the first 5 years of my son's life if we were to move back to the US tomorrow. Even now, with a dual-earner household of two higher-paid tech workers, I just couldn't afford the life my dad could afford at age 28. And I really can't afford my own childhood--the life that we all thought was a little middlebrow and crummy when I was a kid!
Meanwhile, most of my peers and my brother back home will maybe just never afford any of it. Ever. So, instead, they'll enjoy the hedonic pleasures of Ethiopian food and travel to Costa Rica instead of the stability of owning a home or the subtle transcendence of having a family. The child-free, HOA-avoiding, drunken-brunch crowd among my cohort pity my lack of freedom. But maybe they secretly despair of ever "adulting." So, I accept their professions of pity in stride and play along bemoaning the pains of parenthood and the lost joys of unfettered individualism.
This isn't even just a problem for the middle-middle class or the lower tiers of the upper-middle-class. I even have a few friends who make $300K+ (outright rich, in my book) and still can't afford to buy a modest house in their very expensive local real estate market! That's not just annoying wealthy people cosplaying as middle-class for sympathy and to avoid critique: the numbers just don't add up for them in places like New York City, LA, or San Francisco.
To bring this full-circle: I have another quite financially comfortable friend who bought a house just a block away from the house where I was born on Capitol Hill, SE DC. That, my parent's old house, a Victorian "with good bones" (and regrettable surroundings), they bought in the late 1970s for $80K, shortly after they first met. It now sells for ...$3.5 MILLION! My friend's smaller, similarly-dilapidated Victorian "starter home" nearby cost her a cool $1.3M. She will rent it out for a profit for a few years before moving in, to help defer the cost, which is at least less than she'd pay in the Bay Area. Having to buy back my childhood home for perhaps 20x what my parents paid for it is a pretty neat metaphor for all this.
I tend to look at intergenerational economics from the other side. How many Boomers are able to retire based on savings, investments, and pension plans? Statistically, there's a short list of "haves" and a long long long list of "have nots." The average Boomer has a mere $56K in retirement savings. That's not going to cut it. Municipal and state pension plans (to the extent they exist anymore) are seriously underfunded and just can't pay out as expected.
As a kid in Jersey I used to do chores for locals in one of the many retirement villages in the area. Cleaning, gardening, etc. The old people I worked for in the early 1980s belonged to the GI generation. They paid cash for their retirement bungalows and lived comfortable but modest lives. They often died and left large sums to their children and grandchildren. In sharp contrast, the current crop of retirees leverages up with mortgages when they're already north of 65 and then tap the equity in those homes to put in granite counters and fancy appliances. They will die with negative equity.
Don't forget the life-expectancy factor: Life expectancy in 1955 was a full 10 years lower than it was in 2015. Another way of saying that is that the average life expectancy in 1955 was the retirement age: 65 years!
So, of course you didn't spend much later in life. Because there wasn't much, if any, left!
Plus, there wasn't much in the way of life-saving interventions decades ago, either. And those are the things that both extend life, but also eat up finances during that (artificially extended) lifespan.
Actually the life expectancy, if you lived to be 65 at all (and didn't die from a childhood disease or from some bacterial infection like tuberculosis as an adult) was not much lower, only rose by about 4 years since 1950. The bigger difference is now you get more quality of life with hip or knee surgeries, whereas back then most people with bum knees or hips just had to accept it.
There is a separate issue with Social Security not having enough funds because there used to be 4 contributors for each retiree half a century ago, and no it is closer to a 2 to 1 ratio because people just aren't having enough kids to keep population stable (immigration makes up for that, but just barely).
Actuarial charts are very clear. The average American man lives to be about 75-ish. Women about 81 +/-. But there are those who drop dead at 54 and those who live to be 109. It's better to plan and save for the 109 just in case. But most retirees have a de facto budget for 54.
Thank you and kudos on year one. I share your articles frequently. You need to speak at an APA conference (local, state or national!) - You'd be good. - Tony