Our Real Issues Are Bigger Than Inflation Lets On. Why Doesn’t Anyone Care?

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Our cost-of-living situation has reached crisis levels. The two largest recurring expenses for most people — housing and transportation — are completely out of control. We dally around debating over a few basis points in interest rate hikes or figuring out ways to provide $30 worth of internet service for free, all the while the average person is getting absolutely clobbered with costs that won’t be erased by small rebates here and there. Our priorities are on backward.

I use “our” quite loosely here, as this is a global issue rather than a national one. Wealth inequality and rising costs are not unique to the UK, America, Canada, South Africa, or anywhere else. We are increasingly a global economy with increasingly global problems. Supply chain issues are not always limited to one region or nation. Similar government reactions to the pandemic throughout the world yielded similar results. We find ourselves in one large boat, and it seems to be sinking.

Inflation is a number we use to measure this dilemma, but it doesn’t paint a full picture. The methodology for calculating it uses a lot of averages, some particular weightings, and other items that ultimately result in our final figure. Some items in that “basket”, such as fuel costs, can oscillate quite quickly, making the number move more rapidly than it perhaps really is.

Even so, that very flawed figure is still somewhat concerning at 7% in the UK, 6.7% in Canada, and 8.5% in the United States. But it fails to capture just how difficult it will be for people entering their adulthood in the 2020s. It only shows how difficult it is for people already living their lives. I like to think we should always be looking forward and concerned with our futures. That future looks bleak.

A rough forecast

See, I have a slightly different definition of inflation that makes all the difference. For me, it’s the difference in cost for a set of items for a particular household in one year versus what a different household paid for the same items last year. Sounds like semantics, right? Not quite.

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See our inflation calculations here in the US use averages for mortgage payments, car payments, etc. Meaning that if the cost of housing or transportation skyrockets, all the people already in their homes at lower prices keep the inflation number down. My scenario doesn’t do that.

Say you were a recent college graduate relocating for a job in a different city. You decided to buy a house using your freshly minted offer letter and purchase a sensible used car at the same time. Given your extremely rational nature, you decided you don’t need much more than 1,200 square feet. Luckily for you (cost-wise), your job is in Birmingham, Alabama. Here are three years of the same person making the same decisions (home prices from Zillow, used car average from CarGurus):

Image created in Excel by the author.

I don’t know about all of you, but that doesn’t look like a 7% increase between 2021 and 2022. Seems to be a bit steeper than that. I threw Lancaster California in there just to pick somewhere dramatically different from Alabama and to showcase that you’re not hiding from these price increases anywhere.

So while, yes, our basket of averages for inflationary purposes may only be going up by 6–8% annually, the true cost of living the same lifestyle if re-attempted today is much higher than that. This is more than a temporary issue — it’s a generational one and it impacts the future of our world.

A matter of perspective

A lot of how you feel about these developments really comes down to where you stand on the income spectrum and how settled you are in life. If you already own your home and had no plans on buying a new home, any rise in value is welcomed. Similarly, if you purchased a car at the end of 2019 that you plan to drive until 2029, your purchase now looks like genius-level foresight. The used car I purchased in 2020 is worth more now than it was when I bought it.

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But for our younger and future generations, this represents a steep uphill climb, and not a welcome one or one that “builds character.” It’s more like an exercise in futility. I hear older generations wondering aloud why people seem so cynical at such a young age “nowadays”. Trends like this are why.

The jury is still out deliberating on most of Gen Z and the environment they’ll face through young adulthood (which I arbitrarily declare to end at 35). It’s not looking good so far, though. Their nearest relatives, the millennials, were dealt an absolutely miserable hand and most have not escaped. Two-thirds have $0 for their home down payment by their own admission, remain burdened by student loan debt (if they went to college), and have barely started retirement savings despite approaching age 40.

Much of the trends that crippled that generation have not been reversed in time to save Gen Z the same heartache. College is still portrayed as “mandatory” and the resulting debt crippling. The institutions themselves still have no incentive to keep costs in check and students have no method of payment absent a wealthy family background.

Wage growth has continued to fail in comparison to cost-of-living increases. Our anemic growth as a percentage has been trending down in almost every 5-year interval it has been measured since the 1960s. The period with the highest salary for new college graduates (when adjusted for inflation) came and went 53 years ago. In 1970, the median home value of $17,000 was just under double the median annual income of $8,734. Today it’s more like seven times the median annual income. Even if you use household rather than individual income it doesn’t even come close.

I had hoped that at some point we would step in and attempt to rectify these issues. Maybe not in America, but at least somewhere. Unfortunately, that doesn’t seem to be the case. Many other developed nations are facing the same issues, albeit with significantly lower student loan burdens.Only in America is it fairly common to owe $100,000 in loans before buying your house.

Regardless of my opinion on Gen Z’s politics and behavior, I had hoped we wouldn’t continue the newly formed trend of each generation doing progressively worse that started at the tail end of Gen X. The ship seems to be increasingly close to leaving the dock. We’re going to see a big upheaval as a result.

Non-representative representation

As Gen Z enters this hostile climate, we’ll gradually reach the tipping point where the majority of our adult population has been miserable for their entire lives. Millennials and Gen Z both report mental health issues in larger numbers than anyone before them, and I don’t see that trend changing any time soon with insurmountable debt, pervasive toxic culture, and social media addiction.

Sometime around that tipping point, our politics and systems are going to face a massive (and likely way overdue) stress test. When the majority of the population is living in a system that they feel (fairly or not) screwed them, you can expect to start seeing changes to that system. Polling already shows it — both in the United States and elsewhere.

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Our current President is a member of the Silent Generation. Before that, it was boomers since 1992. Somehow, we’ve avoided passing the reigns for decades. The oldest members of Gen X are turning 57 this year but have yet to occupy the White House. Right now the four largest voting blocks are the silent generation, boomers, Gen X, and millennials. When that shifts down one to boomers, Gen X, millennials, and Gen Z, expect the landscape to alter.

The economic reality is that life has been getting exponentially harder for the last several decades, but the last several years have put that into overdrive. Our colleagues and friends in our 20s tell my better half and me how great we’re doing all the time. We’re comfortable, sure, but you’d think we’re millionaires by the way people talk. It’s because the bar is so much lower. Having two used cars and living in a condo with no debt is now considered to be wildly successful.

We have to start to really focus on wage growth and cost controls. We’ve stretched the income inequality piece and the earnings-costs gap as far as they can go without the rubber band snapping. Whether we need to look at investor presence in real estate, encouraging more multi-unit buildings, incentivizing builders to create larger developments of smaller homes, or something else entirely doesn’t matter. The point is we have to start looking big picture.

Raising interest rates a quarter-point to stall out inflation isn’t going to do a thing for the larger issues at hand. If we want to keep our future at one lost generation rather than two, the time to start getting to real work was yesterday.

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.