Will life cost the same in 50 years?

[Learjeff]

post withdrawn

[Learjeff]

@ThisUsernameIsForbidden

link

I question that data. From that blog post:

In 1957, the average income of America’s 44 million families (according to the United States Commerce Department) was $5,000 …

The average cost of a new car in 1957 was $2,100

So, the average home was barely more expensive than a new car? I was born in 1957 so I wouldn’t know from experience, but I seriously doubt a typical new car cost nearly as much as a typical home.

Still, I do believe we’re spending considerably more on housing than we used to, as a percentage of our incomes.

[Amateur_Barbarian]

@JohnT

I gave you a USDA citation that showed that food costs as a % of income has decreased, yet you rejected it. On what grounds did you reject this cite[?]

For one thing, I’m not the poster demanding cites and proof. I don’t need any.

I don’t have any current material but I researched precisely this question a couple of years ago and established to my satisfaction that with mainline data the relative cost of food remained closely coupled to adjusted income. (ETA: within 4-5% or so across decades. You may interpret that as “wild swings” instead, which is why the real, raw numbers are what matters.)

Your cite uses the rather peculiar subset of “discretionary personal income” related to food, which IMVHO skews the results into an almost meaningless comparison. You have to establish what represents “discretionary income” in various eras, and how it relates to total income, and then you get to food costs… it’s pointlessly convoluted.

If you go to a basic chart of family income, adjusted by reasonable factors for present-day cost, and a chart of basic food costs, also adjusted, you can draw some reasonable conclusions. Going to charts and lists that have the data “cooked” by layers of interpretation and selectivity can only be of use if you already have an extensive framework of numbers to match it to. Doing so lets you - or the OP, or the econ prof, or Fox News - pull all kinds of gosh-wow scare/soothe numbers out of the pile, but they mean only what you choose them to mean.

[sleestak]

@clairobscur

I’ve never been convinced by this common statement. First because interest rates are typically low, barely beating inflation (and you typically have to pay taxes on the interests too). After a lifetime of compound interests, those 1000 you saved when you were 20 might have become 4000 but they’re worth $1250 after you deduce inflation. Not as impressive as it seems. Second because your income is typically low and your expenses high when you’re young, Saving is going to be difficult and will require a lot of sacrifices. When older, your income is typically significantly higher and you might own your house, have raised your children, etc…hence have much less expense, and saving a lot might be much easier.

I’m not saying that young people shouldn’t save, but I think what you said about compound interests is completely overrated.

This was already covered but I have to hit it again.

This type of thinking is why so many people never have any money. First, the low interest on bank funds. Where I m at you can get a checking account with ~3% interest (note, this floats quite a bit so there isn’t a hard and fast number and there are tons with really low interest, like .5%).

Imagine you have 100 bucks. You stick it under the mattress for a year. At the end of the year inflation will have gone up ~3% (U.S. historical average is ~3%). So your 100 bucks, at the end of the year, buys you $97 worth of stuff.

Now, you stick that in a checking account at 3%. At the end of the year you have $103 and the inflation is the same, 3%. You are even as far as buying power goes. That is, by the way, a HUGE thing. You haven’t lost anything vs. losing 3% of your buying power.

Now, let’s imagine you have enough to stick it in the stock market and it averages 7% a year. You stick in 100.

At 1 year you have 107.00
At 2 114.49
At 3 122.50
At 4 131.07
…
at 10 year you have 196.72, or basically double.

The thing about compound interest is that it accelerates. The longer it is in the fast it grows so that

at year 20 you have 386.97. In the first 10 years you went up 96.72. In the second 10 you went up 190.25.

The stock market in the U.S. historically averages about 10%. So if you take the same amount, $100, and invest it the return is a bit different.

at 1 year $110
at 2 years 121
at 3 133.1
at 4 146.41
…
at year 7 194.87

Which brings up the rule of 72. Divide 72 by the interest rate and the answer is how many years (periods actually, but for this discussion years works) it will take to double.

72/7=10.2…
72/10=7.2…

Now, there are some points that interfere with the spendable money. First, you have to take out inflation. So, out of the 10% a year you earned you need to pull out 30% of the 10% and put it back in principle to keep the buying power the same. Next, take out taxes and that is ~20% or so. Add in fees for trades, accounts, etc and that is another 10 or 20 %. So you get about 3% spendable out of your 10% return on your money. A note, the tax rates can make this vary a huge amount and it shows why investors are very touchy about capital gain taxes, it really affects the spendable money.

At the same time, things are getting cheap to buy. And currency loses its value over time. But, for most things, the things get cheaper faster than the currency loses value which means that you end up spending less percentage wise on things over time. Oh, and those cheaper things tend, for the most part, to get better over time.

Slee