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Education

Real estate broker breaks down why middle class millennials and Gen Z can't afford housing

"It's fine...we just have to stop getting our fancy coffees and we can afford it."

Photo credit: Canva

Real estate broker explains why Millennials can't buy houses

There's a housing crisis in America. It's not that there aren't houses available. Thousands of houses and apartments sit empty across the country, but the price for housing has reached levels that seem unsustainable for the middle class and those classified as working poor. Some might argue that middle class is now the working poor, though their yearly salary says they should be able to fair just fine.

Unfortunately, what used to be considered a decent salary for a middle class family to live comfortably is now barely enough to scrape by given the cost of housing. But some people from the boomer generation still struggle to understand why millennials and Gen Z can't afford housing.

Freddie Smith, a real estate broker, took to social media to explain why younger generations are struggling to purchase a home when their parents didn't. The real estate finance lesson was prompted when a baby boomer pointed out, "Don't forget we had 13% interest rates in the 80s."

A 13% interest rate seems like insanity upon first glance, but after Smith breaks it down, it doesn't look so bad. "I wish we had 13% interest rates if we had your home prices," the broker says before breaking things down.

Smith quickly starts speaking in numbers, revealing that in 1980 even with their yearly salary being only $22K with the 13% interest rate, their monthly payment only equaled to 26% of their monthly income. If millennials had the same circumstances, their median yearly salary would be $80k, their median price of a home $170K, and with a 13% interest rate the monthly payment would be $1,790–only 26% of their monthly income.

But that's not the reality that Millennials and Gen Z live in. While the median salary is $80k, the median price of a home is $419K, and while the interest rate in 2024 is 7%, with the housing price so high it would make the monthly payment 42% of their monthly income.

Smith wraps up the video saying, "And here's the kicker. Someone making $80K in most cases can't even qualify for this."


@fmsmith319 1980 vs 2024 home prices and interest rates
♬ original sound - Freddie Smith


That certainly put things in perspective for people. The video was flooded with comments from exhausted and frustrated millennials.

"Oh and the wives got to stay home and care for the kids now we pay another $1600 a month for daycare for us both to work," one person laments.

"Imagine if we had 140K homes with 13% rates. The gaslighting from them is WILD. I’d take 14% rates if the average home was only 140K," another says.

"It’s fine.. we just have to stop getting our fancy coffees and we can afford it," someone writes.

"We’re facing a 5K payment with 10% down on the average home. Same house cost 3K a month in rent. So we’re renting indefinitely at the moment," a commenter shares.

But this isn't just an issue in America. There were people outside of the U.S. sharing their astronomical cost of an average family home.

"Same here in Oslo, Norway. By dad bought his house for $22,500 in 1972. He’s selling it now for $1.75 million. And of course he says just this. 'You just have to spend less and work more.' Lol," someone shares.

"It’s worse in Australia. Average salary $80k average house price $1m," another writes.

While Smith doesn't offer a solution, his breakdown may help older generations understand why their children and grandchildren aren't buying homes. One can only hope housing prices go down or wages significantly increase so the middle class can afford a little more than their basic needs on top of being able to buy a home.

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Education

A story about two pairs of boots illustrates how rich people get richer in ways poor people can't

It’s got nothing to do with bootstraps.

Photo by Maxim Hopman on Unsplash

The Sam Vimes "Boots" Theory of Socioeconomic Unfairness explains one way the rich get richer.

Any time conversations about wealth and poverty come up, people inevitably start talking about boots.

The standard phrase that comes up is "pull yourself up by your bootstraps," which is usually shorthand for "work harder and don't ask for or expect help." (The fact that the phrase was originally used sarcastically because pulling oneself up by one's bootstraps is literally, physically impossible is rarely acknowledged, but c'est la vie.) The idea that people who build wealth do so because they individually work harder than poor people is baked into the American consciousness and wrapped up in the ideal of the American dream.

A different take on boots and building wealth, however, paints a more accurate picture of what it takes to get out of poverty.


Author Terry Pratchett is no longer with us, but his writing lives on and is occasionally shared on his official social media accounts. Recently, his Twitter page shared the "Sam Vimes 'Boots' Theory of Socioeconomic Unfairness" from Pratchett's 1993 book "Men At Arms." This boots theory explains that one reason the rich are able to get richer is because they are able to spend less money.

If that sounds confusing, read on:

Pratchett wrote:

"The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that’d still be keeping his feet dry in ten years’ time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet."

In other words, people who have the money to spend a little more upfront often end up spending less in the long run. A $50 pair of boots that last five years essentially cost you $10 a year. But if you can only afford $10 upfront for a pair of boots that last six months, that's what you buy—and you end up paying twice as much over a five-year period.

There are so many areas in which this principle applies when you're poor. Buying in bulk saves you money over the long run, but you have to be able to afford the bulk cost up front. A reliable car that doesn't require regular repairs will cost more than a beater, but if the beater is all you can afford, that's what you're stuck with. You'll likely spend the same or more over time than if you'd bought a newer/higher quality car, but without the capital (or the credit rating) to begin with, you don't have much choice.

People who can afford larger down payments pay lower interest rates, saving them money both immediately and in the long run. People who can afford to buy more can spend more with credit cards, pay off the balances, build up good credit and qualify for lower interest rate loans.

There are lots of good financial decisions and strategies one can utilize if one has the ability to build up some cash. But if you are living paycheck to paycheck, you can't.

Climbing the financial ladder requires getting to the bottom rung first. Those who started off anywhere on the ladder can make all kinds of pronouncements about how to climb it—good, sound advice that really does work if you're already on the ladder. But for people living in poverty, the bottom rung is just out of reach, and the walls you have to climb to get to it are slippery. It's expensive to be poor.

When people talk about how hard it is to climb out of poverty, this is a big part of what they mean. Ladder-climbing advice is useless if you can't actually get to the ladder. And yet, far too many people decry offering people assistance that might help them reach the ladder so they can start taking advantage of all that great financial advice. Why? Perhaps because they were born somewhere on the ladder—even if it was the bottom rung—and aren't aware that there are people for whom the ladder is out of reach. Or perhaps they're unaware of how expensive it is to be poor and how the costs of poverty keep people stuck in the pit. Hopefully, this theory will help more people understand and sympathize with the reality of being poor.

Money makes money, but having money also saves you money. The more money you have, the more wealth you're able to build not only because you have extra money to save, but also because you buy higher quality things that last, therefore spending less in the long run. (There's also the reality that the uber-wealthy will pay $5,000 for shoes they'll only wear a few times, but that's a whole other kind of boots story.)

Thanks, Terry Pratchett, for the simple explanation.


This story originally appeared on 01.28.22

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6 states where the minimum wage and cost of living offer the best bang for your buck

The highest state minimum wage in the U.S. is now $16.28 per hour, but some cities are even higher.

Map via Wikimedia Commons (multiple creators)

State minimum wages range from $7.25/hr to $17.00/hr in 2024.

Public discourse about minimum wage and living wages has been ongoing for years, with people debating whether the government should mandate a minimum hourly pay for workers.

President Franklin D. Roosevelt signed the first federal minimum wage law in 1938, setting the lowest wage a worker could be paid at 25 cents per hour. Nearly a century later, the federal minimum wage is $7.25/hr, holding steady since 2009, with people lobbying to raise it to at least $15/hr for over a decade. However, in addition to federal law, each state has its own laws, a handful of which establish a state minimum wage higher than $15, a handful of which don't have a set minimum wage at all and everything in between.

Cost of living has also been a hot topic as inflation has squeezed everyone's wallets and certain cities and states have become utterly unaffordable, especially for people in low-wage jobs or who who are just starting out in their careers. So how do minimum wage and cost of living correlate state-by-state? Are there any sweet spots with a high(er) minimum wage and low(er) cost of living?

While there’s no perfect storm of super low cost of living and super high minimum wage—for instance, Washington, D.C. has the highest state minimum wage at $17/hr, but housing costs 140% more than the national average—there are some states where the ratio is far more favorable than others. According to Insider Monkey, here are the top six states where you can get the most bang for your minimum wage buck.

6. New Mexico

The Land of Enchantment offers a relatively decent living for its $12/hr minimum wage thanks to the state's below average cost of living. According to Rent Cafe, housing in New Mexico is 8% lower than the national average, monthly utilities are 9% lower, food is 4% lower, transportation is 3% lower and healthcare, goods and services are 2% lower.

According to Smart Asset, Albuquerque, New Mexico ranks as No. 10 in U.S. cities where minimum wage goes the furthest.

5. New Jersey

The Garden State's relatively higher-than-average cost of living is counteracted by relatively solid minimum wage of $14.13/hr. Most of the cost of living in New Jersey is wrapped up in housing, which is 30% higher than the national average, according to Rent Cafe, and utilities, which are 12% higher. Goods and services are 5% higher, but healthcare is 2% lower than the national average. Food and transportation are 1% and 2% higher, respectively.

4. Connecticut

With both a cost of living and minimum wage slightly higher than New Jersey, Connecticut rolls in at No. 4 with a $15/hr minimum wage. Where the Constitution State hits hardest is in utilities, which Rent Cafe places at 30% higher than the national average, and housing, which is 24% higher. Healthcare and goods and services are both 9% higher, while transportation and food are just 1% and 2% above average.

3. Missouri

The Show-Me State says, "Show me the money!" with its somewhat respectable $12/hr minimum wage, which goes pretty far with its relatively low cost of living. Housing is the biggest cost benefit Missouri offers at 18% lower than the national average. But utilities, food, healthcare, and goods and services are also all below average, with only transportation landing right at the national average.

Additionally, St. Louis clocked in at No. 5 for a minimum wage real-world value of $13.68 when adjusting for the city's lower-than-average cost of living.

2. Washington

With the highest state minimum wage in the nation (unless you count Washington, D.C.), Washington's $16.48/hr puts it in second place when accounting for cost of living. Make no mistake, Washington isn't cheap overall, with a cost of living 15% higher than the national average. Housing and transportation hit hard at 29% and 27% higher than the national average, respectively. Healthcare is pricey as well at 20% higher than average. Food costs 12% more, but utilities clock in at 7% less than the national average.

Two cities in Washington hit the top 15 for highest real minimum wage value, though, with Seattle at No. 13 and Spokane at No. 2.

map of united states with these states highlighted in green: Washington, New Mexico, Missouri, Illinois, New Jersey and Connecticut

These six states offer the best minimum wage to cost of living ratio.

Created with mapchart.net

1. Illinois

If you want the best bang for your minimum wage buck, head to the Prairie State with its $13/hr minimum wage and 8% lower than average cost of living. Housing in Illinois is 22% lower than average and utilities are 10% lower. The only expense that comes in higher than average for Illinois is transportation at 3% above average, which isn't enough to keep it out of the top spot.

However, there are some minimum wage sweet spots in certain U.S. cities that aren't reflected in these state rankings. According to Smart Asset, Denver, CO, is the city where minimum wage goes the farthest in the nation. Colorado comes in at a respectable 7th place in state minimum-wage-to-cost-of-living ratio, but Denver has its own mandatory minimum wage of $18.29/hr.

A citywide minimum wage is part of what puts Seattle at the No. 13 spot on that same list. Seattle is one of the most expensive cities in the U.S., but its $19.97 minimum wage for most workers changes the ratio in its favor.

Other cities in the top 10 include Buffalo, NY; Minneapolis, MN; Tucson, AZ; St. Paul, MN; Phoenix, AZ and Stockton, CA.

The minimum wage conversation may vary widely across the U.S., with different costs of living and different state laws on the books. But if you're looking to move someplace where your wage will go the furthest, these six states will likely be your best bet to check out first.

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Target lowers prices on thousands of items, including staples, in 'sign of disinflation'

Good news for people's grocery bills.

Photo by Shabaz Usmani on Unsplash

Target is dropping prices.

It's been a weird few years for theU.S. economy as the COVID-19 pandemic threw the entire system into disarray and recovery from it took some unpredicted turns, for better and for worse. One thing we knew would be coming was inflation, and Americans have felt it at the checkout counter. Price increases on basic food staples as well as restaurant prices across the board have been painful reminders that, despite record unemployment and a booming stock market, everyday life has gotten ridiculously expensive.

But there are some signs things may be taking a positive turn, such as Target's announcement that they will be cutting prices on thousands of items, including household essentials, in the coming months. Here's what shoppers can expect:

Target has already reduced prices on approximately 1,500 items and will continue through the summer to drop thousands more. "Consumers will enjoy savings on everyday items such as milk, meat, bread, soda, fresh fruit and vegetables, snacks, yogurt, peanut butter, coffee, diapers, paper towels, pet food and more. These price reductions will collectively save consumers millions of dollars this summer," the company shared in a press release.

More specifically, a pound of Good & Gather Unsalted Butter that was $3.99 will be $3.79, Good & Gather 5 oz. Organic Baby Spinach will drop from $3.29 to $2.99, and a 20-ounce package of Thomas' Plain Bagels is going from $4.19 to $3.79. Just in time for summer, Aveeno SPF 50 Sunscreen (3 fl oz) will drop from $13.89 to $13.19.

Savvy Target shoppers know how to get the most bang for their buck on a Target trip by using their Target Circle Card, which gives them an additional 5% off purchases, and the company recently reintroduced Target Circle, its free-to-join membership program that applies deals automatically at checkout and features member-exclusive sales throughout the year like Target Circle Week and Target Circle Bonuses—personalized deals to help members earn rewards and get extra savings.

LinkedIn editor Cate Chapman calls Target's price cuts a "sign of disinflation at work"—a hopeful sign, considering Target isn't the only store to announce price drops . Walmart predicted months ago that a "deflationary environment" would mean lower prices on dry groceries and consumables and they were already seeing lower prices on grocery items such as eggs, apples and deli snacks.

woman smiling in a grocery aisle

People's money should go a little further at the grocery store this summer.

Photo by Arren Mills on Unsplash

Even already-low-priced grocery chain Aldi has announced lower prices on 250 items for the summer of 2024. “We don’t want food prices to hold people back from getting together with friends and family or spending time outdoors this season," Dave Rinaldo, president at Aldi U.S., said in a statement.

And McDonald's, which has seen price increases over 100% over the past decade, announced recently that it is exploring a $5 meal option. It used to be that $5 could easily pay for a full McD's meal, but you can't even get a kids' Happy Meal for that price in 2024.

People have reacted to the news of lower grocery prices with a mix of relief and annoyance at feeling like they were being price gouged. They have a point. In fact, President Biden had taken aim at corporations in November of 2023, saying, “Any corporation that has not brought their prices back down, even as inflation has come down, even as the supply chains have been rebuilt, it’s time to stop the price gouging."

Whatever the reason for the lowered prices, feeling a little ease instead of squeeze at the checkout counter will be a refreshing change from the past few years.

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