‘Why is it so hard to make it in America?’ Here’s the true cost of the American Dream

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The pursuit of the American Dream, a concept deeply rooted in the ethos of the United States, has become an increasingly costly endeavor. Recent analyses suggest that for a majority of households, the financial requirements to achieve this dream far exceed their means.

Research by GOBankingRates reveals that in nearly 60% of states, annual expenditures surpass $150,000 to attain the American Dream. This dream encompasses marriage, parenthood, homeownership, vehicle ownership, and pet companionship—elements reminiscent of the iconic board game, The Game of Life.

The study meticulously calculated the costs for each state, incorporating expenses such as mortgages, healthcare, utilities, education, groceries, childcare, and pet care. To provide a comprehensive financial picture, these figures were then doubled to include discretionary spending and savings.

In the picturesque state of Hawaii, the American Dream commands the highest price at $260,734 annually, while Mississippi stands as the most economical at $109,516.

Taking Illinois as an example—a state with mid-range affordability, ranking 26th out of 50 in terms of expense—the breakdown is as follows:

  • Median home price: $255,278
  • Annual child care: $24,174
  • Annual mortgage: $21,401
  • Car: $8,709
  • Grocery: $8,143
  • Health care: $7,021
  • Utilities: $5,278
  • Education: $2,475
  • Pet: $1,170
  • Annual total: $78,369
  • Full cost of the American Dream: $156,739

This figure, $156,739, is a stark contrast to the median household income of $74,580 in 2022, as reported by the Census Bureau. Andrew Murray from GOBankingRates points out the formidable challenge Americans face to afford a comfortable life for a family of four.

Investopedia’s report extends the financial analysis over a lifetime, estimating the American Dream’s cost at an astounding $3.4 million. This sum is notably higher than the average lifetime earnings of an American, which is approximately $2.3 million.

The report itemizes lifetime costs, including health insurance, home ownership, child-rearing, vehicle maintenance, pet care, education, wedding expenses, childbirth, retirement, and funeral costs. Caleb Silver from Investopedia notes that these estimates are conservative, with some costs, like vehicle expenses, assuming the use of pre-owned cars and college fees covering only one year at a public, in-state institution for each child.

The report was partly driven by reader curiosity, with many Investopedia visitors inquiring about the financial aspects of the American Dream. Silver remarks that the term’s popularity in searches reflects the growing sentiment that the dream is slipping away from reach.

Escalating housing costs are a significant barrier to the American Dream, with the median sale price of existing homes surging over 40% from early 2020 to mid-2022. Although the rate of increase has slowed, prices continue to rise, and mortgage rates have doubled since early 2022, now standing at 7.2%.

The Federal Reserve’s aggressive interest rate hikes to combat inflation have contributed to this situation, deterring potential homebuyers. A survey by BMO Financial Group indicates that 71% of prospective buyers are postponing their purchase until the Fed lowers rates.

Retirement expenses also raise concerns, with Investopedia estimating a need for 80% of working income to sustain a 12-year retirement, totaling $715,968. This figure is daunting, considering the median household retirement savings of $87,000 in 2022, with nearly half of households lacking any retirement savings at all.

Inflation has also inflated the costs of other American Dream components, such as child care, groceries, and pet care. The GOBankingRates study highlights that annual grocery expenses now exceed $9,000 in several states, and child care costs surpass $20,000, reaching over $30,000 in Massachusetts.

The younger generation, in particular, is feeling the pressure, grappling with the increased costs of education, child care, and home ownership. A survey conducted by The Harris Poll for USA TODAY in 2023 indicates that two-thirds of Americans acknowledge the unique challenges faced by today’s youth. Grant Gallagher from Affinity Federal Credit Union in New Jersey observes that many young people are redefining the American Dream, focusing on making the most of their current resources rather than chasing traditional milestones.

Source: US Today