One of the cool things about the internet is that you can occasionally find a nifty tool that makes complex topics easier to understand.
I imagine the number of these tools will grow as AI becomes more prominent.
Speaking of AI, one of my overarching questions moving forward is, does anyone really want it?
Obviously, I’m no expert, but everything I’ve read from people inside the industry is all about how no one really understands how huge AI will be and doomsday scenarios about how it’s going to replace all of us. And in casual conversations I’ve had about AI, people’s feelings seem to range from scared to downright alarmist.
With major technological advancements in the past, there have always been people naive about the impact of said advancements. However, I’m not sure we’ve seen such an obvious technological leap that people are openly opposed to. I’m curious to see how it plays out.
Anyway, this post isn’t about AI, but about something even more despised: inflation.
Going back to the tool I referenced above, What I Should Spend has a good-looking inflation calculator that allows you to compare the price of goods at different intervals from 1970 till today. It also shows what the price would look like had it tracked the inflation rate. You can check it out here.
Here’s an example of a movie ticket:
A movie ticket cost $1.55 in 1970. Had the price simply tracked the inflation rate, a movie ticket would cost $12.94 today. But it didn’t. Instead, movie tickets are about 20% cheaper today than they were in 1970.
You can click through and see a bunch of different items, from gas to a Big Mac to minimum wage.
One that stuck out to me was median household income, which at every 5-year interval has been higher than what you would expect with typical inflation:
Not only is household income higher today than at any point in the last 50 years, but there are a lot of goods, like movie tickets, that are cheaper today.
Where things start to get painful are on a few big-ticket items. You could have guessed that the median home price has far outpaced inflation:
Nearly three times as expensive today than in 1970. New cars are nearly 60% more expensive than in 1970, and the price of a public 4-year college is over 200% more costly.
Can you guess what three of the biggest expenses in people’s budgets are? A mortgage, car payment, and student loan payments top the list.
What’s useful about this information is instead of being scared by a broad inflation rate number, it breaks down what’s actually gotten more expensive and what hasn’t. Rather than just complaining that everything was cheaper in the past, with this data, you can parse out that while some things (housing, healthcare, education) have genuinely outpaced inflation by enormous margins, other things (food, clothing, consumer goods) have become legitimately more affordable.
Now, if you want to say that housing is the only thing that matters, and because it’s become so expensive, it’s causing a whole host of other downstream issues, I won’t argue with you. Still, I think the inflation discussion deserves more nuance than we often give it. A main nuance for housing being that homes are far larger and nicer today than they were in 1970.
Take a look at these stats from Ben Carlson:
- In 1973, 49% of homes had no air conditioning. Now just 7% of houses have no AC.
- In 1973, 40% of homes had 1.5 bathrooms or fewer. Today just 4% have fewer than 1.5 bathrooms.
- In 1973, 64% of houses had 3 bedrooms while 23% had 4 bedrooms or more. Now 42% of houses have 3 bedrooms while 47% come with 4 bedrooms or more.
- In 1973, the median house had 1,525 square feet of space. Today it’s closer to 2,500 square feet.
- In 1973, the average size of a U.S. household had 3 people living under one roof. That average is down to 2.5 residents per house.
I like this excerpt from the What I Should Spend page:
“Inflation isn’t one thing that happens uniformly across the economy. It’s thousands of individual price changes driven by supply, demand, technology, policy, and sometimes just fashion. A gallon of milk tells one story, a college education tells another, and a house tells a third.
You need to understand how specific prices have moved, what’s genuinely gotten more expensive versus what just feels more expensive, and how your own financial situation compares to historical norms.
Because the past wasn’t actually simpler. We just remember it that way.”
Thanks for reading!
Jake Elm, CFP® is a financial advisor at Dentist Advisors. Jake a graduate of Utah Valley University’s nationally ranked Personal Financial Planning program. As a financial advisor at Dentist Advisors, he provides dentists with fiduciary guidance related to investments, debt, savings, taxes, and insurance. Learn more about Jake.