Have you ever noticed that anybody driving slower than you is an idiot, and anyone going faster than you is a maniac?
Some people find comparisons invigorating. They want to see how they measure up, who the competition is, even something to aspire to.
Comparisons with money usually circles back around to Keeping Up With The Joneses. You know, that phenomenon that makes you want to go out and buy the 2017 Explorer because your coworker/neighbor/friend just bought a 2016, and your 2015 model is looking a little stale in comparison (they did a refresh this year!).
What about Millennials? Who are we trying to keep up with. Our parents at our age? Probably. Many of us feel like we’re part of a lost generation, destined to lower pay, worse health, either renting with roommates or living at home. Never getting a crack at the American Dream.
From what I can tell, a lot of us just want to be average. We want good paying jobs with reasonable work/life balance, affordable housing, the time and energy to pursue interests and hobbies and causes we care about. Unfortunately, it’s not entirely the avocado toast (the internet’s hottest new metaphor!) that’s doing us in…
The Per Capita Income (the total income of the country divided by ALL it’s citizens) was $29,979 in 2015. I’m rounding up to $30k a year (which sounds better, and you can picture a little over $2000 a month hitting your bank account). That’s not a great amount of money, but you can do well making $30k a year, especially as a 22 year old (even with student loans, as we’ll see later).
Sadly, on average about 40% of people over 18 make less than $30,000 a year. When we adjust the earliest age to 22 (to account for attending college for 4 years before entering the workforce), the numbers get scarier:
Note: Per Capita income is the red line in the middle. I’ve also added the blue line for minimum wage ($15,080/year) and an orange line for Median Household Income ($55,755). This does not factor in those with bachelors degrees vs. those without. Per Capita income is not a great tool for measuring actual income but provides an interesting reference point. Median Household Income applies to each household, regardless of family status (single, married, kids, no kids, etc). Also note that Median means that 50% of households make more and 50% make less. The lines trend down, which is good – it means people increase their income as they get older, which we generally understand.
So almost 50% of 22 year olds made less than $15,080 a year (min. wage) and almost 80% made less than $30,000 a year – these numbers might be a bit skewed due to the fact that it can take anywhere from a couple months to a year after graduating to find a job as well as working only part of the year (May/June through December).
23 year olds are doing a little better: about 40% make less than minimum wage but 75% still make less than the per person average.
One-fifth of 27 year olds are still making minimum wage and almost 50% of them are making less than $30,000 a year. And almost a third of 30 year olds are still making less than $30,000 a year.
And not only is there a slim chance to break above the Median Household income (only 25% of 30 year olds made more on their own), but progress in both Household Income and Per Capita income appears similar. Now, it’s a misconception that needing two breadwinners is a recent trend (source). But it’s hard to make more Household income when there’s a good chance one or both partner(s) can’t even make the Per Capita income (let alone could still easily be making minimum wage, or not much more!)
There’s a lot happening those first 5 years. Building careers, paying off student loans, saving for retirement, and starting families. Unfortunately, things get hairy around 30 (all 3 lines really taper off). Most of us delay what we can.
While the numbers vary some, the general consensus is that the average student graduates with a little over $30,000 in student loan debt. Interest rates vary from around 3-4% to 6-7%.
On a repayment plan of 10 years (assuming no deferral and starting payments ASAP), the minimum monthly payment would be around $328. For a 15 year term the payment is $245.
In relation to income, a minimum payment of $328 is equal to 16% of the take home pay from $30,000 a year, assuming no state income taxes and no 401k contributions. On minimum wage, it comes to 30% of take home pay.
Remember that 75% of 23 year olds make less than $30,000 and almost 40% make less than minimum wage. While not all of them have that much debt, at those levels of income ANY debt can be a pretty big roadblock to financial security.
Saving For Retirement
Next let’s look at saving for retirement. Starting as early as possible is universally recommended since the money you save in your 20’s has the most time to grow.
A 23 year old has 42 years to save if they want to retire by 65, which requires a savings rate of 15%. At minimum wage, this equals $189 a month and reduces take home pay to $917 a month. At $30,000 a year, it’s $375 a month and reduces take home pay to $1732 a month. If you have the average student loan debt, saving to retire at 65 increases your minimum payments to 36% and 19% of respective take home pay, even though the dollar amount stays the same (assuming you’re saving in a 401k).
Of course it’s possible to focus on paying of debt early and then transition into saving once your debt is paid off (and not succumbing to too much lifestyle inflation). But waiting also means you’re increasing the percentage you have to save when you do start saving.
Waiting until you’re 30 (where almost 2/3rds that age make more than $30,000) means you need to increase your savings rate to 22% to still have a chance at retiring at 65.
I’m also ignoring Social Security. Personally, it’s something I keep in the back of my mind, but 65 is a long ways away and a lot can happen in 40 years.
Other “Average” Numbers*
- The average credit card debt for people who carry a balance was over $7,000. (source)
- Restaurant spending per U.S. household averaged over $250 a month in 2015. Total spending at restaurants and grocery stores averaged over $7,000 a year, or almost $600 a month. (source)
- Millennials (generally ages 21/22 – 35/36) spend around $241 a month on eating out (44% of their food spending). (source)
- Almost 50% of work commutes by car are more than 20 miles round trip. (source)
- That’s 5,000 miles a year, or $460 in gas (at $2.30 a gallon averaging 25 MPG)
*These don’t specifically apply to millennials but they’re interesting to look at as far as “controllable” average expenses go.
This Isn’t The Whole Story
Seeing how you measure up is both easier and harder than ever. It’s easy for people to curate an image of their lifestyle on social media and in public while at the same time covering up the cracks in the foundation.
It’s also unreliable to depend solely on averages when looking at things like income. There are plenty of millennials who are doing just fine, while others are on the verge of financial disaster. Different industries, parts of the country, and age groups are doing better than others.
But that doesn’t mean it’s not a worthwhile exercise to try to figure out what position the majority of people are in. For a generation that seems to simply want an average lifestyle, it might be good to do some thinking about what average actually looks like.
Image by jesadaphorn at FreeDigitalPhotos.net