Why A $100,000 Salary Can’t Buy The American Dream

CNBC

17 Apr 202409:28

Summary

TLDRThe script explores the evolving definition of the American Dream, noting a significant shift in financial expectations and realities. It highlights that over half of Americans now believe they need at least $100,000 annually to be financially comfortable, a stark increase from previous norms. Despite higher incomes, many still live paycheck to paycheck due to rising costs and stagnant wages. The narrative also discusses the challenges of home ownership, increased student loan debts, and the impact of social media on perceptions of financial success. It paints a picture of a dream that is increasingly out of reach, reflecting broader economic strains and changing societal values.

Takeaways

💰 More than half of Americans believe they need at least $100,000 annually to feel financially comfortable, up from the traditional benchmark of a six-figure salary.
📈 The cost of living has outpaced wage growth over the past 50 years, making it harder for many to achieve a middle-class lifestyle.
🏠 Homeownership, a key part of the American Dream, is increasingly out of reach for many, with 66% of renters feeling hopeless about ever owning a home.
📚 The necessity of higher education and the resulting student loan debt have become significant barriers to financial stability and the accumulation of wealth.
💔 Despite the challenges, a majority of Millennials and Gen Zers still aspire to own a home, viewing it as part of the American Dream.
💵 The median household income in the U.S. is significantly lower than the income required to afford a home, leading to financial stress and a focus on short-term spending over long-term goals.
🌐 Geographic disparities play a significant role in financial comfort levels, with states like Hawaii, California, and Massachusetts requiring over $240,000 annually for a comfortable lifestyle.
📉 Inflation is eroding purchasing power, reducing the ability to save and invest, leading to a sense of financial insecurity and psychological impact on individuals.
🛍️ Consumerism and social media are contributing to a culture of spending, where people seek to fill emotional voids through material possessions rather than long-term financial planning.
👶 The American Dream is becoming more elusive, with the birth lottery (one's socio-economic background) playing a significant role in determining one's ability to achieve it.
🚀 Economists suggest that debt growth has substituted for income growth, leading to a cycle of debt that hinders financial progress and the realization of the American Dream.

Q & A

What is the new benchmark for financial comfort in America according to the transcript?
-More than half of Americans say they would need at least $100,000 a year to be financially comfortable.
What was the traditional representation of earning a disposable income and building savings based on wants?
-The traditional representation was a six-figure salary, which used to be the gold standard income.
What does the American Dream typically represent for a middle-class lifestyle?
-The American Dream represents being able to pay bills, put food on the table, have a roof over the family's head, and have some additional savings.
What has happened to the concept of financial freedom that used to be symbolized by a six-figure salary?
-What used to symbolize financial freedom is now keeping people stressed about making ends meet, with people making well over six figures still living paycheck to paycheck.
What percentage of people say they would need a salary between $100,000 to $149,000 per year to feel financially comfortable?
-26% of people say they would need a salary in this range to feel financially comfortable.
Why has it become increasingly hard for many families to attain a middle-class lifestyle?
-Wages haven't kept up with the cost of living for the last 50 years or so, making it difficult for families to attain the middle-class lifestyle.
What factors can affect how much one needs to feel financially secure?
-The amount needed to feel financially secure varies depending on geographical location and lifestyle.
What did GoBankingRates analyze to understand the financial needs of a family of four in each state?
-GoBankingRates analyzed how much a family of two adults and two children would need in each state to own a home, a car, a pet, and have an additional 20% of their income for savings and 30% for discretionary spending.
What are the most affordable states in terms of the annual income required for the American Dream?
-The most affordable states, such as Mississippi, Arkansas, and Kentucky, need between $109,000 and $117,000.
Which states are identified as the most expensive in terms of the annual income required for the American Dream?
-Hawaii, California, and Massachusetts are the most expensive, each requiring an annual income of more than $240,000.
What is the percentage of the country where a family of four can afford their basic needs on less than $100,000 per year?
-In about 80% of the country, a family of four can afford their basic needs on less than $100,000 per year.
What has been the impact of student loan debt on the ability to achieve the American Dream for many young adults?
-Student loan debt, which reached an all-time high of $1.77 trillion in the first quarter of 2023, has a ripple effect, making it harder for young adults to achieve the American Dream by delaying their ability to save for a down payment on a home and increasing financial stress.

Outlines

00:00

💼 The Changing Face of Financial Comfort in America

The American Dream, traditionally associated with a middle-class lifestyle, is increasingly out of reach for many. A six-figure salary, once the gold standard, no longer guarantees financial security or disposable income. Over two-thirds of Americans believe they need an annual income between $100,000 to $149,000 to feel financially comfortable. The cost of living has outpaced wage growth, making it difficult for families to attain the middle-class lifestyle. Geographic location plays a significant role, with states like New York and San Francisco requiring even higher incomes. According to GoBankingRates, owning a home, a car, and having savings and discretionary spending necessitate an annual income exceeding $100,000 in all states, with the most affordable states still requiring between $109,000 and $117,000. The median income for a family of four in these states is significantly lower, highlighting the gap between income and living costs. The analysis also shows that a substantial portion of the country can afford basic needs on less than $100,000, but this does not account for savings or additional goals. The rise in student loan debt further exacerbates the issue, with graduates facing the challenge of entering the middle class with significant debt. The American Dream, which includes owning property and starting a family, is becoming increasingly elusive, with even those who have achieved these milestones struggling to maintain financial stability.

05:02

🏠 The Struggle for Home Ownership and the Pursuit of the American Dream

Despite the financial challenges, millennials and Gen Zers continue to aspire to home ownership, which remains a significant part of their vision of the American Dream. However, a significant majority of these younger generations feel that the rising cost of homes leaves them hopeless about ever owning one. A substantial percentage of respondents indicate they cannot afford the down payment, with student loan debt being a major factor delaying their ability to save. The typical first-time homebuyer in 2022 had a household income of $95,900, yet the median household income in the U.S. was under $75,000, illustrating the disparity between what is earned and what is required to afford a home. Socioeconomic background plays a crucial role in one's financial success, with those born into wealth faring better. The collective credit card debt of Americans stands at $1.13 trillion, and inflation is eroding purchasing power, impacting the ability to save or invest in long-term goals. This financial instability can lead to feelings of powerlessness, insecurity, and negatively affect psychological health. Economists suggest that debt growth has become a substitute for income growth, with many Americans continuing to spend despite economic concerns. The current economic climate makes it difficult for Gen Zers to set long-term goals, leading to a focus on immediate enjoyment and experiences, even when it means delaying traditional milestones like home ownership and starting a family. The rise of consumerism and the influence of social media, which often portrays glamorous lifestyles, further exacerbate feelings of inadequacy and discouragement, especially among young adults. The American Dream, which should be independent of one's socioeconomic background, is becoming increasingly relative and challenging to achieve.

Mindmap

Keywords

💡Financial Comfort

Financial comfort refers to a state where an individual or family has enough income to cover their expenses, save, and enjoy a certain lifestyle without constant financial stress. In the video, it is mentioned that more than half of Americans believe they would need at least $100,000 a year to achieve this state, highlighting the changing perceptions of what constitutes financial stability.

💡Six-Figure Salary

A six-figure salary is an annual income ranging from $100,000 to $999,999. Historically, it was considered the 'gold standard' income that signified financial success and the ability to not just meet basic needs but also indulge in discretionary spending. However, the video suggests that this benchmark may no longer guarantee the lifestyle it once did due to rising costs of living.

💡American Dream

The American Dream is a national ethos of the United States, which promises that freedom, prosperity, and opportunity are available to every individual through hard work. The video discusses how this dream, traditionally associated with home ownership and a middle-class lifestyle, is becoming increasingly difficult to achieve for many due to economic shifts and financial constraints.

💡Cost of Living

Cost of living refers to the amount of money needed to sustain a certain level of living, including basic expenses such as housing, food, taxes, and healthcare. The video emphasizes that wages have not kept pace with the cost of living, making it harder for families to attain a middle-class lifestyle, especially in areas like New York or San Francisco where daily expenses are significantly higher.

💡Disposable Income

Disposable income is the income that remains after taxes and is available for spending or saving as one sees fit. The video mentions that a six-figure salary used to represent a tipping point for earning disposable income, allowing for savings and spending based on wants, not just needs. However, it is now suggested that even those making well over six figures may struggle to have disposable income.

💡Economic Security

Economic security means having a stable and secure financial situation where one can meet current needs and save for future uncertainties. The video discusses how the core of the American Dream is about achieving a level of economic security that allows not just for survival, but also the ability to improve one's condition and provide for future generations.

💡Geographical Location

Geographical location significantly impacts the cost of living and thus the income required for financial comfort. The video provides an analysis showing that the required annual income for achieving the American Dream varies by state, with the most affordable states still requiring more than $100,000 and the most expensive requiring over $240,000.

💡Student Loan Debt

Student loan debt refers to the outstanding amount owed by students who have taken out loans to pay for their education. The video highlights that student loan debt has reached an all-time high, which can delay the ability to save for major life milestones like buying a home, thus impacting the achievement of the American Dream.

💡Down Payment

A down payment is the initial payment made when purchasing a home, typically required to secure a mortgage. The video states that saving for a down payment is a significant challenge for many, with 72% of respondents saying they can't afford it, and 52% indicating that student loan debt has delayed their ability to save for one.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. The video discusses how inflation erodes people's purchasing power, reducing their ability to save for the future or invest in long-term goals, thus impacting financial stability and the American Dream.

💡Social Media

Social media platforms can influence perceptions of financial success and lifestyle expectations. The video suggests that the portrayal of glamorous lifestyles on social media can make individuals, especially young adults, feel discouraged about their own financial standing and unable to compete with the standards set by what they see online.

💡Consumerism

Consumerism is the social and economic order that encourages the acquisition of goods and services in ever-increasing amounts. The video touches on how consumerism can lead to a cycle of spending in an attempt to fill emotional needs, which can be particularly problematic when individuals are already struggling with financial challenges and debt.

Highlights

More than half of Americans say they would need at least $100,000 a year to be financially comfortable

The benchmark of a six figure salary used to be the gold standard income, representing a tipping point of earning disposable income and building savings

The American Dream represents a middle class lifestyle where you can pay bills, provide for your family, and have savings

People making well over six figures are still living paycheck to paycheck, and the symbol of financial freedom now causes stress about making ends meet

26% say they would need a salary in the range of $100,000 to $149,000 per year to feel financially comfortable

Wages haven't kept up with the cost of living for the last 50 years, making it hard for many families to attain a middle class lifestyle

The amount needed to feel financially secure varies greatly depending on geographical location and lifestyle

A six figure salary may not be enough to make ends meet in certain parts of the country like New York or San Francisco with high daily expenses

All 50 states require more than a $100,000 annual income for a family of four to own a home, a car, a pet, and have 20% of income for savings and 30% for discretionary spending

The most affordable states like Mississippi, Arkansas and Kentucky need between $109,000 and $117,000

The most expensive states like Hawaii, California and Massachusetts each require an annual income of more than $240,000

In about 80% of the country, a family of four can afford their basic needs on less than $100,000 per year

Only about 3% of counties have a median income higher than the basic cost of living

The American Dream is harder to achieve now with milestones like getting a job, buying a home and starting a family becoming more difficult

A high school degree is no longer enough to get into the middle class - college education is now required

Student loan debt reached an all time high of $1.77 trillion in Q1 2023, causing a ripple effect on generations starting adulthood with debt

Millennials and Gen Zers still want to buy homes despite feeling they can't afford it, with 62-63% saying home ownership is part of the American Dream

66% of US renters feel hopeless about ever owning a home due to rising prices, and 72% can't afford the down payment

Collectively, Americans owe $1.13 trillion on their credit cards, with inflation eroding purchasing power and reducing the ability to save

Debt growth has become a substitution for income growth, with over a quarter of Americans doom spending despite economic concerns

Social media has changed the conversation, with the abundance of glamorous lifestyles making many feel they can't financially compete and are discouraged in their own financial standing

The American Dream is about having opportunities regardless of the luck of the birth lottery, but it's becoming increasingly relative and inaccessible for many