Americans Say They Need $186K to Feel Financially Secure

The (Expectations vs. Reality) Gap, Spiraling Cost of Living, and the Rise of Non-Believers

The iconic comedian George Carlin once joked that it's called the American Dream because you have to be asleep to believe it. These words seem more relevant than ever today.

According to a recent Bankrate study, the average American feels they need to earn $186,000 per year to live comfortably. That's just the average figure, reflecting what most people mentioned in the study. Below is the chart showing the actual breakdown of respondents by category.

As you can see, income expectations vary significantly across different backgrounds, generations, and individual situations. Yet, even the lowest figure across all groups stands at $171,000, which is, well... a lot.

According to the US Bureau of Labor Statistics, the median full-time worker in the U.S. earns $59,500 a year. That's a long way from $186,000.

You can already see the problem here. That's a huge gap. And this gap is exactly why many Americans are under financial stress.

And it can be squarely laid at the feet of inflation.

In the past 5 years, we've seen an unprecedented rise in the cost of living. This happened for two main reasons...

First, during the COVID pandemic, the Fed pumped an unprecedented $6.1 trillion into the economy from 2020 to 2021. Then came Bidenomics, with a trillion-dollar spree on initiatives like the American Rescue Plan, Infrastructure Investment and Jobs Act, Inflation Reduction Act, and other measures since Biden took office.

You don’t need to look far to see the consequences of all these policies.

Groceries, tuition, childcare, healthcare, and insurance have become increasingly unaffordable for millions of Americans. About three out of every four are currently living paycheck to paycheck.

Right now, the median price of a home is $413,000. In 2019, just before everything went haywire, it was about $300,000. With two-earner U.S. households bringing in just over $75,000 a year, the income-to-home price ratio is at a measly 18%. That’s lowest it's ever been.

When you add it all up, the average American is barely making ends meet. That's how bad it's become.

The American Dream Updated

Okay, but could it be that people are simply overestimating how much money they need to live comfortably? You definitely get that idea when you look at the $282K figure reported by black respondents.

I don't believe so. Here's why.

In that same study, they also asked people to define what financial success means to them. The responses showed that Americans now define financial success as “living debt-free” and being “prepared for future financial obligations.”

That’s not the kind of answers you’d typically expect to hear. Just a few years ago, it was much more common for people to define financial success as becoming a multi-millionaire or having enough money to quit their job.

Fast forward to 2024, and the American Dream isn’t about a suburban house with a white picket fence and affording your kids' education anymore. It's about getting those pesky credit cards paid off.

So, no, I don’t think people are being unreasonable here. In fact, the changed definition of financial success tells me that things are really bad, and people are just adjusting to these new realities.

A recent study by Pew Research Center, where they asked people about the American Dream, pretty much confirms that. Take a look at the next graph.

In response to the question, "Is the American Dream still possible to achieve?" 47% of Americans (almost one in two) basically said, "nope, not anymore.”

This is what happens when the cost of living keeps rising uncontrollably: expectations wane. Dreams? Forget about it. People are just trying to make ends meet and cover basic necessities.

Regards,

Lau Vegys