Can You Afford the American Dream?

Dave:
I just read this new report that says that the American Dream now costs $1 million more than the average American makes in their lifetime, and this certainly feeds into this consumer sentiment, slump, vibe, session, whatever you want to call it that we’re in. But what are the numbers behind this report and do they add up? Today we’re breaking down the cost of the American dream. Hey friends, it’s Dave. Welcome to On the Market, and I’m joined by my favorite MythBuster and voice of reason, Henry Washington. What’s up man?

Henry:
What’s up bud? This is exciting. I am looking forward to learning what this craziness is going to be about.

Dave:
Yeah, I think this is going to be a fun new format that we’re trying out. I think it’s safe to say that you have not prepared for this recording at all. Is that correct?

Henry:
I know nothing about what you’re about to tell me.

Dave:
I knew you would excel in this role of doing nothing before the recording. Boom. Nailed it. Okay. My sweet spot casting. Nailed. Alright, so basically though, this is a joke. The whole point was I’m basically going to walk Henry through an article that I just found was super interesting and he can interrupt me with questions or be the voice of reason here. So let’s just jump into it. I found this article and found it super interesting because we see all this economic data right now that is very positive, right? GDP just came out and it’s up. The labor market’s doing surprisingly well. Real estate, despite people saying it’s going to crash, is being resilient, but the people aren’t happy. I think that’s safe to say, right? People are not feeling the economy even though some of the high level data says it’s doing well. And I read this article and I was like, this is it, right? Expectations are X and reality is Y, and there’s a big gap between the two.

Henry:
I think people just feel abused, and so when they hear the headlines and say, the economy’s doing well, it’s like an abused person. Go, yeah, whatever you say it’s doing well. Yeah, but I don’t feel that way at all.

Dave:
Right? Yeah. People feel gaslighted. It’s like sure, whatever you say, yeah, okay, you’re lying to me. But I think the reason, I guess we’ve talked about a bunch on this show, but the reason I think people feel that way is both things can be true. The total pie, the total economy can be growing and it might not be impacting ordinary people all that much. You see a lot about how CEOs and executives and big corporations are taking a ton more money, but it’s not necessarily leading to more income for people. But let’s talk specifically about this. So this comes from Investipedia, and according to their research, the American dream now costs $4.4 million, and that’s the estimated lifetime household cost of common milestones. So that includes stuff like getting married, raising two children, buying a home, having new cars, saving for retirement, going on yearly

Henry:
Vacation. So are they saying that you need $4.4 million a year to afford the American dream, or that you will need to spend that much over your lifetime?

Dave:
Over your lifetime? Yeah.

Henry:
You buying it?

Dave:
Maybe. Maybe. But that’s a daunting number, right?

Henry:
Yes.

Dave:
What’s so daunting about is they go on to say that the average American with a bachelor’s degree, so that’s only about a third of people have a bachelor’s degree. The average American earns $2.8 million during their whole career. So if you’re single, you’re totally screwed. You can’t do this. But I guess this dream probably is talking about a couple. It has wedding and raising kids in there. Not that you can’t raise kids. I think

Henry:
That could be a little misleading though. If you think of the average cost of a house, so what’s the national average right now? 450?

Dave:
Yeah, it’s four 40. Yeah,

Henry:
Four 40. And then the normal American may maybe own two to three homes over their lifetime.

Dave:
Yes.

Henry:
So four 50 times three is what?

Dave:
1.3 million.

Henry:
Okay. So that’s 1.3 million in just housing. But people don’t typically pay their houses off. They might need it to buy it, but they’re not going to spend the entire amount they’ll sell before they get through paying off the home typically. So I mean, it’s probably a little misleading that number.

Dave:
So the number they gave for housing as part of this calculation is $930,000. And basically I figured out the way they were calculating is that they do pay it off and it is 440,000, but if you finance a $440,000 house at seven and a half percent interest rate, you’re paying 900 grand over the course of 30 years to own that home. So it’s a lot of money.

Henry:
Oh yeah, man, that 4.4 million,

Dave:
Yeah,

Henry:
That’s intense.

Dave:
Okay. But the 930,000 wasn’t even the biggest cost. I’ll ask you to guess what the biggest cost was. It’s probably not something you think about. It’s not something you necessarily buy.

Henry:
Oh, goodness, man, I have no clue. Insurance, no. Make us pay for that forever. For everything. Forever.

Dave:
Well, we’ll get to that in a minute, but I don’t think that’s even included in this calculation. So the retirement is $1.6 million, so that’s just retirement savings, which honestly I would argue that’s not enough. Doesn’t sound like enough. That’s not enough. It doesn’t sound like enough. If you retire at 65 and let’s just say you live 20 years after that, hopefully longer, but that’s 80 grand a year, that’s 80 grand a year. And depending on how you’re doing that, you’re probably paying taxes on it. So let’s like five grand a month in spending money, and by the time you and I retire, just a rule of thumb on inflation is that the spending power of a dollar Hals every 30 years. So you’re going to need double that in 30 years.

Henry:
Yeah, absolutely. That’s not enough. And people also forget that the older you get, the more expensive your housing costs becomes because if you have to go into a home or a community that’s between five to 10 grand a month right now, on average, it’s only going to go up. Yeah, it’s nuts,

Dave:
Man. Oh my God. That’s insane. That’s

Henry:
Nuts. Okay,

Dave:
So those are the two biggest ones. The third biggest one is raising two kids and their four year colleges. That’s like a lot of expenses all mixed together,

Henry:
But they’re taking loans out.

Dave:
Oh, for colleges,

Henry:
People are taking student loans,

Dave:
But still they estimate the cost of raising two kids with four year colleges at 832 grand. You got two kids, you putting that aside,

Henry:
I don’t know. I feel like 832 grand is per year, right? Kids are expensive. Do you know how much it costs to put your kids in activities? I don’t know how kids afford activities.

Dave:
Yeah, swim classes are 80 grand a year,

Henry:
And then my wife will be like, oh, we got to take her to ballet and then dance tomorrow and then swim the next day. And I’m like, what does this cost? No, it’s expensive, bro.

Dave:
Yeah, it seems crazy. I mean, I don’t have kids yet, but I have a financial planner and she was asking if you have kids, are you going to pay for their college? And I was like, no, it’s too expensive. That

Henry:
Has to include daycare too, right? Because daycare is nuts.

Dave:
I think so, yeah. I think it does include childcare from what it says.

Henry:
See, care is the most unaffordable when you’re young and when you’re old, it’s a couple grand a month when you’re preschool age and it’s another five to 10 grand a month when you’re a senior.

Dave:
It’s insane. Yeah,

Henry:
It’s nuts, man.

Dave:
All right, so we’ve hit some of the categories that cost Americans the most over their lifetime, but when we come back, we’ll talk about other elements that are part of the American dream and the expenses that are not even included in this 4.4 million total. Welcome back friends, Henry and I are here breaking down the cost of the American dream. So just so we’ve recapped so far of the American dream retirement, that’s something everyone aspires to, obviously they’re saying 1.6 million. I think a classic part of the American dream is owning a home, which is 930 grand. We have raising two kids with their four year colleges. This next one, which isn’t the last really big one, which I find this kind of crazy, but they say owning a new car and they count both people in the couple having new car Lifetime, 800, $11,000. And I sort of reverse engineered the math and it’s basically if you own a car, if you take out a five-year loan of the car and make payments on it, and then the minute you’re done paying, you

Henry:
Buy a new car, a new one.

Dave:
So that to me seems too much.

Henry:
That seems like a lot.

Dave:
Is that the American dream though, to just constantly own a new car? I guess for me that’s never been part of it.

Henry:
Oh yeah, for sure. 100%. Yeah, absolutely.

Dave:
I’m just not a car guy.

Henry:
I know people with over a thousand dollars a month car payments on cars that aren’t that cool. Somebody will go out and buy a regular car, but they don’t have great credit, but they want to be fancy. And so instead of getting a Honda Accord, they get a Mercedes-Benz and they’re paying $1,200 a month. They have a 7, 8, 9, 10% interest rate because they got to keep up with the Joneses and all their friends have new cars. I see. Yeah, I definitely see that.

Dave:
Yeah, I saw something that the average car payment now in the US is like $600 a month.

Henry:
That’s

Dave:
Too much. That is too much. I don’t care how much money you make, don’t do that. It’s a bad

Henry:
Idea. That doesn’t shock me at all.

Dave:
I mean, my perspective is warped. I haven’t owned a car in five years. I have a bike that I bought to ride that every day, so it’s a little different. But yeah, man, that part was super expensive.

Henry:
So I mean if you’re doing the math right, the 4.4 million, how many working years are we giving people?

Dave:
I think 45.

Henry:
4.4 million divided by 40, so that’s $110,000 a year consistently through your working mind

Dave:
As a couple.

Henry:
Oh, that’s a family

Dave:
With two people with a family. But I think that’s what’s so crazy about this is that the median right now for family, I think it’s like 80 grand. So that’s why people are pissed, right? It’s like if this dream is yours, retirement, owning a home, raising two kids, having nice cars, which is kind of a reasonable dream. That’s what we’ve all been conditioned to want. The average person can’t afford that. And so no wonder people are angry.

Henry:
Yeah, I mean I get that mean, but breaking it down, that’s 55 grand per working adult for your entire working career. That doesn’t seem too crazy.

Dave:
It’s not, but I think it’s just different than in the past when this dream was like you could just have a regular job,

Henry:
You could work at a factory.

Dave:
Exactly. And you could get that and now you can’t. That’s fair. That’s a big shift in our society and I do want to talk about that more, but let me just tell you the last couple categories they included here, pets 36,000. I mean honestly, I’d spend the 8 32 on my pets wedding. The average place for a wedding now is $44,000.

Henry:
That unbelievable. That makes me so angry. It’s just ridiculous. In a culture where people don’t stay married, that seems absurd to me.

Dave:
It’s insane because if you just say the word wedding to anyone, they just double their prices. When my wife and I were getting married, I was like, we should just call it a family reunion. Let’s just call the photographer and the caterer and be like, we’re having a family reunion. Can you cater it for us? My wife might show up wearing a wedding dress, but it’s a family reunion. It doesn’t matter. We’re saying vows at our family reunion. What’s it to you? But it’s unbelievable. 44 grand.

Henry:
That’s ridiculous. That’s the dumbest thing in the world

Dave:
So much. It’s unbelievable. And then annual vacation at 180 grand. So I figured that’s like 60 years of vacations at three grand a pop.

Henry:
That’s fine.

Dave:
Yeah. I don’t know why they included this either calculation, but they put funeral as 8,500 bucks. I don’t know what I imagine the American dream, I’m not thinking about my funeral all that much. I guess in some respects I think about a funeral as part of the American dream is that I hope they don’t just dump my body behind the funeral.

Henry:
Funerals can be expensive. I honestly think that’s probably cheap.

Dave:
Yeah, I think it is.

Henry:
I think people spend a whole lot more on funerals.

Dave:
Yeah, I think that’s pretty cheap. So I think what’s crazy to me about this is $4.4 million, but it doesn’t even include living expenses. This isn’t food, it’s not eating. Even the owning a car doesn’t include maintenance and gas. So this is outside of your living expenses.

Henry:
It’s funny when you said what’s the most expensive part? And you asked me that question, my immediate thought went to food. I guarantee you it’s my most expensive part’s, my most

Dave:
Expensive part for you and me probably

Henry:
I put a high priority on good food. Absolutely. If that’s not food, that’s insane.

Dave:
You had been so proud of me this weekend. I went to a barbecue restaurant with some friends, got a full brisket entree and then ordered another rack of ribs on top of it, and everyone looked at me like I was crazy and I ate every damn bite. It was so

Henry:
Good. That is the happiest thing I’ve heard today.

Dave:
But

Henry:
Then

Dave:
$120 later, that was dinner. So that adds up. So I think when you think about the fact that living expenses aren’t even included in this, then you’re pretty far away from achieving this. If you earn a median income, which is average, half of people make media income or less. So that’s what what’s just kind of so crazy to me about this.

Henry:
I mean, it’s scary to think there’s a big piece of this pie a lot of people are going to miss out on. And typically it’s going to be the things at the latter end of the spectrum, like retirement, and you’re going to have to cut back on a lot of the things like housing expenses. And that’s crazy, man. I don’t know how people can do it.

Dave:
What sort of bums me out is I don’t feel like it’s going to get better. Maybe I’m pessimistic or I’m missing something. But for me it feels like a long path for this to get any better. Things aren’t getting less expensive, and although wages are going up, it would take a long time of stable prices and increasing wages for this to meaningfully change.

Henry:
Yeah, no, I don’t think it truly gets better. I do think there is still a gap between what things cost and what people make. And I do think that that gap is going to continue to close, but I don’t think it’s going to be able to solve all of the problems that we’ve identified here.

Dave:
And I mean, this is a reason why I think you and I both got into real estate investing because you need to find ways to supplement your income. But the other thing I wanted to ask you about is it strikes me that the average person is probably going to have to adjust their expectation of what the American dream really is.

Henry:
Absolutely the American dream, I mean American dream is what to own a home, to have a job, own a home, be able to retire and take care of your family. And I think that people still want that, but I think that that’s why side hustle culture is so popular. And we do live in a time now where it is a lot easier to find ways to make money on the side than it was in the past. And now I think side hustles become more of a necessity than something a few people do Occasionally. I think a lot more of the American population is going to have a second sort of income on the side and it just be a normal part of life.

Dave:
It seems to me that you sort of have two choices here. You either increase your income and you could do that by doing a side hustle like you said, or pursuing a career that’s going to earn you higher than the median income. And I did mention that statistically people in the US who have a bachelor’s degree do earn higher amounts, but that’s not a hard and fast rule. You can make a lot great money in the trades. There are other ways to make great money. You can go to a coding bootcamp and make a ton of money. So I just mean in general, finding a way to increase your W2 single job or supplement your income or on the other side of things, sort of define your own version of the American dream. That probably doesn’t include one of these major categories here. Raising to do kids retirement, that’s hard to give up.

Henry:
I’m just sitting here thinking of the fundamental differences between the times and I think what you and I grew up seeing because kind of on this cusp of two generations who have two different paths. And so for our parents and for us, almost essentially a path was laid out for us where all you had to really do was just walk down it and you could afford the American dream. They told you what to do, you go to school, you get good grades, you go to college, you get a degree, you get a job, you climb the corporate ladder, you’ll make enough money to live your life and this is the first time when really that path doesn’t lead you to the American dream anymore.
Yeah,
It’s still there, but it doesn’t lead you all the way to the American dream anymore. It stops somewhere short of it. And so now people are forced to essentially become their own trailblazers if they want to get to the American dream. It’s a different thing now.

Dave:
It’s absolutely right. It just requires, I think, a little bit more creativity. You need to figure out how you’re going to do it, whether that’s house hacking, something like that, which is a great way to do it, or driving for Uber or becoming a real estate investor. Those are all good ways to do

Henry:
It. And I guess the question is, is that bad or wrong? Do we feel like we are entitled to the American dream
Like
We were before? Because you see it all the time on TikTok and people can’t afford a home and they can’t afford to do these things and it needs to be fixed. And it’s always been on us to get to the American dream, but now it’s on us to figure out how to get there too. The path doesn’t take you there anymore.

Dave:
Okay, so we’re getting pretty deep here, so stay with us because Henry and I are about to get into some of the underlying causes tied to the cost of the American dream, the parts of the dream that we personally would consider giving up first. And the things we don’t want you to know are lifetime total spending on all this right after the break. Welcome back to the show. Let’s pick up where we left off. I think it would be great if everyone could just follow a path like you said, and be financially secure. That would be an ideal situation. I do think it is an opportunity to sort of rethink the American dream and what pieces of it actually matter to you. Because when I was looking at this, I sort of alluded to this, but to me owning a new cart just doesn’t matter.
It’s not something I prioritize. I think if I need a car again in the future, which I’m sure I will, I probably won’t buy a new car even though I can afford it, it’s just not super important to me. And I think there are things like owning a home that needs to be seriously reconsidered. I’ve rented for the last five years, I have own a home, so I don’t want to be a hypocrite, but I do think there might be a future where people choose to rent for a longer time because it actually is right now, in today’s day and age, it is a
Financial
Benefit. It is cheaper to rent by any metric. Don’t listen to your agent who tells you that you should buy necessarily,

Henry:
Because total cost of ownership is what we’re talking about. It’s not just your mortgage payment. Yes.

Dave:
Yeah. When you talk about everything, and that includes appreciation, it is cheaper right now to rent and that might change. That pendulum sort of swings back and forth over history, but I think it’s actually quite liberating if you can remove yourself and sort of divorce yourself from that part of the American dream where you think I have to own a home last five years, it just didn’t make sense to me. I rent my house and I take the money. I would’ve invested in a home and I invested in rental properties and that’s just been a better financial situation for me. Does that come with some emotional downsides of not owning our own home? Sure. But that’s sort of one of the trade-offs that we have to make in this day and age.

Henry:
Yep, I agree.

Dave:
If you had to remove one of these categories from your American dream, what would it be?

Henry:
Am I thinking as I’m following a traditional path or like myself? You, oh gosh, man. For me, it would be retirement because I’m going to use real estate as my retirement, so I wouldn’t even budget that in.

Dave:
Yeah, I guess that’s true. You’re not saving that money, right? You’re not going to have a amount in your savings account that you’re going to deplete. You might have to put that money into a asset, but then it’s not going to deplete because it’s going to be income producing. Correct. I guess when I look at this, I’ll be honest, I spent more than that on my wedding. I did not even close. I don’t know how it happened, but man, when you look at the final bill, it sucks.

Henry:
I did not.

Dave:
But that one is one I would maybe reconsider.

Henry:
Oh yeah, yeah, definitely. For me, I’m, it’s never been that big of a thing for me, and luckily I married someone who did not want it to be a thing either.

Dave:
Yeah. I think my wife would’ve been fine with a totally different kind of wedding.

Henry:
Oh, so this was all you is what you’re saying?

Dave:
Yeah. Oh, I was just a groomzilla for sure. No, actually we were thinking about eloping, but we got engaged in the fall of 2019 and we wound up waiting four years to get married because of Covid and we live in another country, and we just decided we wanted to have all of our friends stay in one place. We hadn’t seen people in years and it was totally worth it. It was awesome, but

Henry:
I wouldn’t know. I wasn’t invited, but

Dave:
No, you definitely weren’t. No.

Henry:
So you’re a smart man.

Dave:
I can get, in retrospect, we should have invited you, but it was a very small wedding. That would’ve been fun. We’ll do another not for that amount of money though. It’s going to be cheap this time. Fair enough. But no, so I think the thing, the one hope I have for something getting cheaper is college. I actually saw something the other day that college costs have been going down according to the college board.

Henry:
Yeah. Demand is down.

Dave:
It’s just got to break. It’s just one of those things that does not make sense. I can rant about this for hours.

Henry:
Oh, I can go off on this. I’ll get on a high horse about this.

Dave:
I don’t know if you know this, but before I worked at BiggerPockets, I worked in ed tech in higher ed and this, the cost spiral of higher education drives me absolutely insane. It makes no sense. No one benefits from it. They’re all nonprofits. No one even makes more money. It’s just nonsense. The worst, the whole thing is the worst, the worst, worst. So I have some hope that maybe we’ll see either trade schools become more popular or demand will decline so much that colleges will have to rethink their pricing structure and what they prioritize. And rather than building out a buffalo shaped pool at the University of Colorado, which they did for $3 billion, and then pass that price on to students for some reason, you might just maybe become a little more focused on the education piece and not all of the auxiliary things and let people decide what’s important to them and whether they want to spend money on a fancy gym or whatever it else. It is the school is buying on students’ behalf. But that’s a whole nother episode. We should just start a

Henry:
Rant. I would love to partake in that episode.

Dave:
Yes. All right. Well, we could just get on and complain about stuff. This is our new show format, by the way. Henry and I have just too gruy dude. Just complaining about you. Yeah, exactly. All right. Well, thanks for this conversation. This has been a lot of fun. Hopefully y’all are listening to this, but I have one last question for you, Henry. What category of spending do you never want to examine in your life? You don’t want to know the lifetime total of how much you’ve spent on what part of your life.

Henry:
Oh, it’s 100% eating out for me. I don’t want to know it. Here’s why I don’t want to know it. I will not change. No matter how absurd the number is. It doesn’t, the number can be the most absurd, ridiculous amount. You might as well not so. I might as well not know it when we budget. I’m like, I don’t need to see that part. It’s just, I’m going to do this.

Dave:
That’s how I feel about vacations. I just, that 180 grand over the lifetime, that’s not going to do it for me. I’m sorry. I just spend way too much money on it and I never calculate it.

Henry:
This is why I’ve achieved financial freedom so that I can spend money on food when I want, how I want, where I want. I’ve always been that way. If I online shop for some clothes right after I spend 200 bucks, buyer’s remorse, I’m like, I didn’t need those shirts. That’s crazy. But I can go to dinner and spend a grand on a dinner with my friends and not blink, not even think about twice

Dave:
Hundred percent.

Henry:
Don’t even think about it. Just in my sleep.

Dave:
I love it. I mean, because it’s fun. That’s what you want to do. Forget the acronym. Fire Financial Independence, retire early. Mine’s. F-I-G-O-V. Mine is fi gov. It’s financial independence. Go on vacation. Because I’m not trying, I am not trying to retire early. I’m trying to take more vacations. That’s what I’m in the game for.

Henry:
Yeah, I Exactly, man. I don’t want to retire. I love what I’m doing. I never want to retire, but I definitely want to be able to go out to eat where I want.

Dave:
This is why I’m so excited to hang out with you in Vegas next year for Bebe Con because it combines are two favorite things. It’s good. It’s just going up. It just, and all the good

Henry:
Food. Good food, yes.

Dave:
But Henry, thanks so much for doing this show. This was a lot of fun. Please let us know what you think of this format. We always are trying to bring you news and recent information. This is not exactly real estate, but it really has to do with the economy and I think it’s very indicative of what’s going on in the broader economy in an American society. And so if you found value of this, please let us know.

Henry:
Great conversation, and it sounds like to me, you need to reach out to the travel channel and see if you can just be the new Anthony Bourdain because then you can just travel and eat food everywhere.

Dave:
My hero.

Henry:
What an icon.

Dave:
Alright, well, thank you all so much for listening to this episode of On The Market. We’ll see you next time.