Friday afternoon Question: How much to be an American?

The idea for this question arose over coffee this morning. A person has a cost (food, clothing, shelter, medical care, etc.) to society associated with existing from birth to death. A person also has a lifetime earning amount that offsets that cost. Obviously, there is a great deal of variance between individuals from chronic ailments on the cost side to financial asset ownership, and offsetting costs education vs. increased earnings. The two part question:

  1. What is the bare minimum cost (needs not wants) of the average (or median or quartile) American?
  2. What is the lifetime earnings needed to offset the cost from 1?

Note: No attempt is made to quantify the non-financially measurable cost or benefits such as love, companionship, etc. and let us assume that all humans have the right to life, liberty, and the pursuit of happiness.

Why/how is that society’s cost? Sounds like that person’s cost.

If that is how you want to think about it, fine.


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New Starbucks promotion?

Irish coffees?

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I feel like the Amish may have answered this.

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The “right to life, liberty and the pursuit of happiness” is saying the government can’t strip you of life. The government failing to give you food isn’t stripping you of life though, just as the government isn’t the one making you hungry.

Now obviously as a modern society having basic safety nets makes sense from a moral standpoint, but I don’t think it follows from a strict reading of one’s rights according to the Constitution.

Interesting questions, and requiring no coffee to be asked.

We have to define the needs of the average American.

Also, I’ll assume that all expenses after the birthing are eventually aid for by the individual, so the expenses start right away.

Shelter: anything from a tent to a mansion. Let’s say the minimum is renting a room in a heated/cooled house with shared kitchen and bathroom. So, $200/month in a low COL area, for life, so $2400/year * 70 years = $168,000
Food and water: get by on $20/day, so $600/month, so $7200 * 70 = $504,000
Now, in order to make money, you have to spend money, be it on an education, driving to work, buying nicer clothes than Goodwill, etc. We can spitball it by saying that 50% of one’s paycheck goes to paying for that paycheck (including taxes). You want to use a different percentage, go ahead. Doubling is easier to math. So, $1.4 million is my first estimate.

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Thank you. The over coffee spit ball was $1million without even doing the basic break out of this estimate. I haven’t done financial modeling in years but thinking about the stream of costs versus the stream of incomes took me back.

Neuwirth’s (actuary, brother of Bebe) book on PV’ing all asset purchases was a good read. Instead of all the math, I simply ask myself of large purchases: “How long will this last versus alternatives?” (It is why I’m keeping my 20+year-old car instead of purchasing a new one that would sit in my driveway at $800/month as I work inside, at home.) I cannot find this book right now, else I’d quote some passages.

My calc’s above, I think, add hazards that would shorten one’s life. One might prefer more secure housing that adds expected years. One might prefer better health care options that add expected years. I mean, living in a cave would likely result in a caveman’s average life expectancy. All that goes into the determination of that percentage of the paycheck which are expenses in getting that paycheck. Paying now (health care) for added years later is often a situational decision. Not everyone has to make the same ones at the same time, so “average” is corralled by a variance.

The basic “need” is to live. Decisions are then made to make living better versus the cost of that better living and the means to be able to choose it. Assuming rational participants, of course.

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That seems extremely high for a bare minimum. I would think that if you are buying groceries in a regular grocery store and making an effort to not be wasteful, you could easily do $5 a day. At least in the medium-sized metro area where I live (population between 1 & 5 million).

Maybe it’s more in the biggest cities or if you are in a food desert.

That said, your housing estimate seems low.

I’m guessing $1.2 million is closer to the right number.

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So if you work from age 18 to age 65 that works out to a little over $25,500 a year… call it $26,000.

That’s an hourly wage of $12.50 an hour for a 40 hour per week job with paid time off.

No paid time off and you’d need to make $14.45 an hour.

(Assuming there are 1800 working hours and 2080 paid hours in a year.)

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