5 Ways Your Parents Budgeted Differently in the ’80s
This is a special year.
Not only does 2015 mark the 30th anniversary of the ’80s classic movie Back to the Future, but also it’s the year Marty McFly traveled to in Back to the Future Part II.
In the spirit of nostalgia, we thought we’d do a little time travel of our own. We’re taking it back to 1985 to see how the average family budget has changed since then.
So hold onto your hoverboards and enjoy the ride!
1. You Pay More for Phone Service
The iconic “brick” phone came out in 1984 and sold for the bargain price of $3,995. Thankfully, cell phones have gotten cheaper since then.
Phone service? Not so much. Sure, you don’t have to pay long distance to call Aunt Edna anymore. But phone bills have left inflation in the dust.
Consider this: If ET had phoned home in 1985, FCC data shows he would have paid about $41 a month. That adds up to about $90 in 2015 dollars. According to a recent study, he’d have to shell out $120–148 a month to call (or text) his home planet today.
2. Your Parents Spent More on New Cars
It’s always been hard to resist. But in 1985, that new-car smell was especially intoxicating. Perhaps the lure of a wood-paneled minivan or T-top Camaro sent folks over the edge.
Whatever magic was in the air, people dropped cash on the car lot. According to the Bureau of Labor Statistics (BLS), families spent 9% of their budget buying cars in 1985, and brand-new cars beat used ones nearly two-thirds of the time.
Now, we spend less than 7% on vehicle purchases, with more than half of that going toward used cars. Apparently, mid-80s cars are so enticing people can’t stop buying them even today.
3. You Have a Bigger Mortgage (But Pay Less Interest)
There’s no doubt homes have grown bigger over time. Compare the average new home today with one in 1985, and you’d see about an 800-square-foot difference based on Census data. Is it any wonder that housing takes up more budget real estate these days?
But there is one thing you can feel better about. Fixed-rate mortgages accrued nearly 12.5% interest in 1985, according to Bankrate.com. Today, it hovers around 4%.
Let’s say you take out a $200,000 mortgage today. At 4% interest, you’d pay $344,000 over the course of 30 years. Tack a 12.5% interest rate onto the same mortgage, and the 30-year cost skyrockets to $768,000. What a difference three decades makes!
4. Your Parents Had a Bigger Clothing Budget
From power suits to parachute pants, ’80s fashion was head and shoulder pads above the rest. And all that rad-ness came at a price. BLS data shows your parent’s generation budgeted twice as much for clothes and accessories in 1985 as you do today.
Was it just the yuppie way? Not necessarily. Clothes cost more back then. Take Jordache jeans, for example. Once a designer staple, they cost $26 a pair in the ’80s. That translates into $57 with inflation. Now, you can buy a pair of Jordache jeans at Walmart for less than $20.
5. You’re in Charge of Your Own Future
Thirty years ago, you could pretty much count on your employer to fund your nest egg. Nine out of 10 Fortune 100 companies offered pension plans, and the 401(k) was the new kid on the retirement block.
Fast forward to today, and pensions are about as rare as unicorns. The latest Towers Watson research shows only three in 10 Fortune 100 companies offer pensions.
With 401(k)s standard in most workplaces, retirement savings rests squarely on your shoulders. Thirty-something workers surveyed by Transamerica expect nearly twice as much of their retirement income to come from self-funded savings compared to their 60-something counterparts.
What Can You Learn From the Past?
The truth is, family budgets today aren’t that different than they were in 1985. Sure, you might spend a little more here, and your parents might have spent a little more there. But all in all, not much has changed.
There’s no DeLorean time machine to launch you into the future and change your retirement fate. You’ve got to get it right today. Here’s how:
- Budget for retirement now. You’ve got lots of time to think about your future. Don’t waste it by waiting until the last minute to save. We recommend investing 15% of your income because it’s enough to build a solid nest egg without straining your budget today. Just be sure you’re out of debt with a fully stocked emergency fund first.
- Choose wisely. Your investments, that is! If you want your money to work for you, invest in good growth stock mutual funds with a long history of above-average returns.
With a plan in your pocket, you’ll be on the road to a future that’s so bright you’ve gotta wear shades.