Affording the American Dream, Then and Now

How many people do you know that can afford the American Dream? In the post-war America of the 50’s, the modern notion of the American Dream crystallized: families aspired to a single family home, an automobile (or two), and modern comforts like a television, refrigerator, and washing machine. These seem like modest goals now, until you consider that in the fifties, most families got by on a single income! What percentage of households today can afford a median-priced house, two cars, and common comforts on a single income, and how does that compare to yesteryear?

According to the Economic Policy Institute, the median family budget for a family of four was around $40,000 in 2004, including all major household expense categories and taxes paid. The EPI family budget must be adjusted for inflation, and to account for ownership of a home and two cars. Excluding housing and transportation, the EPI median budget would be roughly $33,000 in 2007 dollars. Two low-cost Honda Civics would add another $12,000 per year, and $1600 per month would pay for a US-median $200,000 house, for a total budget of $64,000 per year. The EPI family budget excludes entertainment, consumer electronics, vacations, and other discretionary spending. Padding the budget to $70,000 might account for these expenses. A family breadwinner making $70,000 per year is in the 88% percentile, making it clear why most families now get by on two incomes.

While it’s difficult to reconstruct an accurate family budget for 1950 using available data, data on the change in housing prices and median incomes can be used as a starting point. Median home values rose 151% from 1950-2000, and in 1950 a single family home cost only $53,000 in 2007 dollars. Median income was around $22,000 in 2007 dollars. This equates to roughly $4800 per year in mortgage, taxes, and insurance, or almost 75% less than in the modern example. The 1950’s earner would thus have to earn 2.5 times the median income to afford the American dream budget of $55,000. If one car is excluded (since few families at the time had two cars), this ratio drops to 2.2 times median income.

In 2007, an individual would have to earn 2.7 times the median income of $26,000 to afford the American dream. This ratio is higher than it was in 1950, and most of the difference can be explained by rising home prices, particularly in the last decade. At the same time, the ratio isn’t significantly higher, and even in the 50’s the idealized American dream was only affordable by a small percentage. Why then do many today feel the 50’s and 60’s were such better times? Perhaps, as this blog suggests, it’s because we’re working harder today to afford consumer lifestyles and modern luxuries, rather than sacrificing comfort for family time.

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