Inflation rate drives prices for the American dream to new heights
Donald Trump promised to “bring back the American dream” at the Republican National Convention in July. During the convention last week, Democratic presidential candidate Kamala Harris praised Americans “who work hard (and) pursue their dreams.”
But how big do we have to dream now when it comes to our finances?
USA TODAY has put the “dream” in financial terms several times – most recently this spring. GoBankingRates’ analysis found that the American Dream for a family of four now costs more than $150,000, but that amount can vary widely depending on where you live.
This is how much the American dream can cost in every state
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USA TODAY dreamed a little bigger a decade ago when it did its own math. To be clear, it wasn’t about his-and-hers Lamborghinis or luxury vacations, but it was still well outside the reach of the average American household income. The price then: $130,908.
After three presidents, a pandemic, and four decades of high inflation, we decided to find out how much more expensive that dream is today.
How much more expensive has the American dream become?
That American dream now costs 36% more, or $47,000 more. The good news: median household income has increased by 46%, according to the Bureau of Labor Statistics’ Consumer Price Index.
The bad news: According to the US Census Bureau, only about one in eight US households earned that much ten years ago. This ratio has not changed significantly.
Inflation drives up the cost of “essential goods”
More than half of the higher costs come from what we consider essential. See below for more information on some of the biggest cost drivers.
Assumptions about the typical household
Does the American Dream still involve having a spouse and two children? That’s one of the many assumptions we made a decade ago. Other assumptions included having a car, living in an average-priced home, and getting health insurance through your employer.
In some of the points below, we had to go a step further. We made assumptions about our author’s assumptions or based our estimates on changes in the consumer price index. Overall, prices in the United States have increased 32% since our article was published on July 4, 2014.
Of course, not all prices have increased by a third. But in some cases the differences are eye-opening when you consider that these figures are only 10 years old.
Real estate interest rates and prices are the biggest drivers of basic needs
Housing costs are the largest expense in most of our households, and they account for nearly a quarter of the increase in the cost of the American Dream over the past decade, or $25,104.
Not only are home prices at record highs, but interest rates on 30-year mortgages have also risen by about 2.5 percentage points. One percentage point increases the monthly payment for a home at today’s average price by about $300, says Lawrence Yun, chief economist at the National Association of Realtors.
Health care and food costs are $5,500 per year
It should come as no surprise that medical costs have risen significantly. Milliman estimates that health care costs for a family of four have risen 32 percent, or $3,123, over the decade. At the other end of the spectrum, clothing prices have risen less than three percent, according to the BLS Consumer Price Index.
Grocery prices have risen nearly 36% since 2014. Most of that increase occurred between 2021 and 2023 and remains a sore spot for many Americans. However, the USDA’s moderate-cost food plan we compared only rose 19%. Maybe they swapped out a few things from their virtual shopping cart?
Family holidays and dinners become more expensive extras
Perhaps the vacation costs charged by GoGo Charters are a little more extravagant than those in 2014, but you’ll probably want to discount that number the further you delve into this list.
Again, the cost of this week-long vacation is not extravagant, but it is more than 73% higher than it was 10 years ago. According to the Consumer Price Index for food away from home, restaurant prices are also almost 50% higher.
Tax burden increases with spending over the decade
The Institute on Taxation and Economic Policy estimates that people in this income bracket will pay 28.8 percent in federal, state and local taxes this year. That’s about one percentage point less than in 2014, but because our American Dreamers need more income to pay for everything, they’ll pay $7,663 more in taxes.
It is worth noting that even at this income level, this fictional family may still be shortchanged on their pension and their children’s college education:
◾ Maximize your retirement savings: If they make about $180,000 annually, both parents probably work in some capacity. If they were truly planning for the future, they would both contribute the maximum amount to a 401(k) or SEP IRA. The additional $23,000 pre-tax contribution to a 401(k) would push the family income above $200,000.
◾ Create a 529 plan: And if we’re just dreaming here, wouldn’t they pay even more into a 529 plan for their children? According to the annual U.S. News and World Report survey, tuition at public colleges has increased by 30%. Without room and board, four years now costs about $50,000.
Of course, the American Dream is not fully exemplified or realized by our income, which is another aspect USA TODAY explored earlier this year.
In this story, Charisse Jones points out, “Dreams are, by definition, wishful thinking, and there is no guarantee that they will become reality. They shimmer in the distance or in our imagination.”
“Some people may feel like they’ve missed their goal if they don’t become a multimillionaire. For others, however, a comfortable home, a family and a little extra money in the bank are all they need.”
