Choosing where to pursue the American Dream has become almost as controversial as choosing a college major. Increasingly the rising cost of living has instigated a shift from prioritizing personal preference to return on investment when considering varying locales. While big city living has long attracted young professionals looking for access to the best opportunities in kickstarting their careers, cost of living considerations have made those expensive city living choices a little more difficult.
Many criticize today’s Millennials for settling in pricey living locales while carrying record debt loads. However, just as a college education provides a better return on investment than a high school degree, the higher costs of urban life may also deliver more bang for your buck.
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Arizona State University’s Jose Lobo used data from the U.S. Bureau of Economic Analysis (BEA) to study where Americans actually made the most money when differing costs of living were taken into account – a metric he labeled “real average wage per job”. The metro with the highest real average wages per capita was Silicon Valley’s San Jose, with a real average wage topping $75k. NYC suburban metro Bridgeport-Stamford, Connecticut came in second with a real average wage per capita of $64,321. Coming in third was the San Francisco-Oakland-Hayward metro at an average $60,562 per capita.
Despite the high cost of living in these areas, Lobo found that knowledge hubs and energy centers still dominated the list of desirable locations thanks to considerably higher wages. On the flip side, the smaller and more isolated a metro region, the less bang for your buck you enjoyed. The only real exceptions were energy metros like Midland and Odessa, Texas where the natural gas boom rapidly increased wages while cost of living remained relatively low.
For example, a double than average salary likely comes in pricey metro area with a double than average rent – making it a wash. However, other living expenses like food, healthcare costs, etc. while more expensive, will not be quite double-making the higher city salary the more favorable choice. In other words, if a metro’s income is double the average, only a few living costs will be inflated as much, making city living a better value.
Of course, that double than average city salary is not a guarantee. The high “real wage” averages in these top metro areas are inflated by high concentrations of highly educated, knowledge workers whose wage gains are more than sufficient to offset higher living costs. It is lower-paid workers whose wages are not enough to keep up who bear the brunt of expensive city living.
A 2013 study by University of Pennsylvania’s Jessie Handbury found that high-income city residents also get access to the best deals. In researching Nielsen shopping data for 40,000 American households across more than 500 food categories, she found that households earning above $100,000, have grocery costs 20 percent lower in cities with high per-capita income (like New York) than in cities with a low per-capita income (like New Orleans). On the flip side, a household earning $15,000 per year faces approximately 20 percent higher grocery costs in cities with relatively high per-capita income. Additionally, federal programs intended to help the poor like food stamps and child-care subsidies are generally not adjusted for local cost of living, disqualifying many of the poor in high cost cities like New York who are paid $10 an hour rather than $7.50 an hour, artificially putting them above the poverty line.
So while big city living clearly favors the wealthy and puts undue burden on the poor, what about those in between? What about all those hopeful young professionals moving to these concentrated areas of opportunity, saddling themselves with high living costs on top of their uncertain employment prospects and student loan debts?
For young singles with no familial obligations, it’s a risk that could be worth taking. The cost of increased access to higher salary positions, chances to move up the career ladder, and opportunities to beef up the resume, can be offset easily for those willing to make temporary lifestyle tradeoffs, reducing necessary costs of living- sharing space with roommates, using public transit, or eating on the cheap.
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It’s not just the opportunity for increased income that makes these trade-offs worthwhile either. It’s access to the greater resources available in these high priced cities along with other personal considerations- culture, network, diversity, and lifestyle.
While financial realities should certainly be a factor in deciding the ideal destination for pursuit of the American Dream, return on investment goes beyond numbers. Yes, big city living is a financial risk that can come with big benefits or major stressors, but the ultimate measure of ROI will be overall satisfaction. While income and financial stressors certainly affect that satisfaction, dismissing all the other factors might set you up for a life and locale that doesn’t necessarily reflect your core values, priorities, and ultimate happiness.