I've moved from a poor, working-class state to a better-developed, middle-class state in the US.

Here's my problem: I'm having an extremely hard time adjusting to the price differences between the two states. Here in the new state, prices on items (more specifically, the housing market) can easily be three times as much what I've been used to seeing.

People here also tend to shop for leisure, and money never seems to be a problem. Grocery shopping is a "grab whatever looks good" activity. Back where I used to live, nobody had such luxuries. I know my mom would always have a hard time justifying spending even $20 if she didn't truly need it, and grocery shopping was always planned and it was only store-brands, never name-brand things.

As you can see, this is quite the major culture shock I'm experiencing. I've never seen such willy-nilly monetary exchange before.

I'm thinking of this in terms of pure dollar value, however.

In the interest of making this non-subjective, my question is this: how can I look at this situation more objectively? What factors go into driving prices up, and what causes people to spend more, and others to save?

And specifically regarding prices of housing, what factors drive prices in that regard? I mean, the houses are roughly the same... but almost 3 times as expensive. As an example, I know that a 2 bedroom apartment would rent for roughly $450/mo back home (and people would find that a bit expensive!). Here, for a similar apartment, $1000/mo might be on the low end.

(Have you ever seen a cartoon where a character gets a huge bill at a restaurant, and their eyes shoot out of their eye sockets and they faint? Yeah... that's how I felt looking at some of the places around here...)

  • 1
    Re: housing prices, the old adage is location location location. Why did you move to the new state? What did it offer that the other one didn't? Multiply that by lost of people and that's partly why real estate is more expensive. Also some people have more moeny so they can spend more. – chrisfs Feb 19 '11 at 4:47
  • One bit of practical advice from my own experience in this same situation: If your new coworkers / friends go out to eat regularly, join them occasionally, even if it's a trifle more expensive than you're used to. – user296 Feb 20 '11 at 1:19
  • for some real eye shooters, look at 2 bedroom apartments in New York City, South Beach Miami, and Monaco. Determine why the prices are what they are, based on the information provided from this page – RD. Jul 17 '11 at 23:28

Beware of keeping up with the Joneses. Many of your free-spending neighbors are broke.

Basically, the prices of things like what you're noticing will rise as incomes in the area rise. A great example of this can be found in state capitals and college towns, where battalions of government workers or students all make just about the same amount of money and drive prices accordingly.

For example, a college town tends to have a tight rental market.

  • 4
    +1. Maybe they are not technically broke yet, but you will be shocked once you know the amount of their debt (of course they won't tell you). Living modest lifestyle but debt-free is an option to consider. – sharptooth Feb 18 '11 at 11:22
  • 2
    Self-confidence is your protection against "keeping up with the Joneses". So you're driving the clunky old '88 Volkswagen Fox to work..... so what? Sure, you could buy a new car, but why? Would it make you a better person? Would it render you more socially acceptable or respected in the eyes of your peers? And if they're as shallow as that, how much do you care? – user296 Feb 18 '11 at 18:39
  • As a government worker in a college town, I'd love to read more about this tight market theory. It explains some things, but I've also found some counter evidence. – jldugger Feb 18 '11 at 19:39

The prices reflect what the market will bear. People have more money, things will likely cost more. Think of it in terms of percentages and you can start to justify the higher housing costs.

My father likes to tell me that his first mortgage cost him $75 a month, and he had no idea how he was going to pay it each month. He also earned $3/hr at his job. So his housing costs were 15% of his gross income. My dear father almost passed out when he learned that my mortgage was $1000 a month, but since I earn $4000/month gross, I am really only paying 25% of my salary. (Numbers made up)

So if he complains I pay 10% more, so be it, but complaining I pay $925 more isn't worrying to me because of my increased salary.

So if your complaint is the amounts, you must take ratios, percentages and relative comparisons. However if you are baffled by people having money and wasting it on silly or foolish purchases, I am with you. I still don't understand why people will use the closest ATM and just pay the $2 fee.

Do right by yourself and don't mind what others are up to.

  • 1
    Taking Ayn Rand to the extreme, the time you spend walking to a different ATM and the amount of money you save by doing so could be interpreted as paid work. – Simon Richter Mar 25 '11 at 8:54

Under what conditions did you move? My favourite method of judging prices objectively comes from concepts written in Your Money or Your Life by Joe Dominguez. Essentially it normalizes money spent by making you figure out how much an item costs with respect to the number of hours you needed to work to afford it. I prefer that method versus comparing with others since it is objective for yourself and looks beyond just the bare prices.

  • Relocation for school and work. I elected to move because my home state has a ridiculously high unemployment rate and not only that, the expected job outlook for the future consists of careers nowhere near related to the field I'm in. :\ Where I live now is really nice and I'm adjusting well and am able to afford what I need, it's just a shock to physically see the price tags of things be so much higher than what I'm used to. – Corey Feb 18 '11 at 0:58

I live in one of the highest cost of living areas in my country. For the cost of less than half the down payment my spouse and I have saved up for a house we could easily buy a home in most of the lower cost of living areas (and several homes in, say, Detroit).

As for the rest of your question, though, we've chosen not to live that way. Because, like all high cost of living areas, ours is near a city there are more free and inexpensive things to do than you would think at first. While others in our area think a great time is pre-gaming drinks at a nice bar, an expensive restaurant, then some more drinks we've taught ourselves how to make great meals from scratch using sale and inexpensive ingredients from the grocery store and often do that on weekends, topped off by a movie from the redbox that we promptly return the next day. We have chosen friends who will hang out with us over potluck dinners and board games instead of out on the town. On weekend days we visit free museums, do hikes, wander around revitalized downtown strips, or play at the local parks. Our groceries, as I mentioned, are sale items or use coupons and we go for less expensive meats and produce. We visit our local farmer's market for fun, not to buy the expensive produce. We might find ourselves wandering through the mall to window shop, but when it comes time to actually buy clothing or goods for the apartment we shop around for up to months to find a good deal.

Plenty of our friends have money enough to spend, and the most debt they are usually wallowing in is a big car payment, no consumer debt. At the same time I have trouble imagining some of them buying a house any time soon, because they simply can't be saving all that much (since I know their incomes). They may eventually be able to afford a condo and ride rising housing prices to a townhome and then a house - it's what lots of people do around here, loosing buckets money in realtor fees and closing costs along the way. Even with these choices, it's hard to view my friends as selfish knowing that most of them give around 10% of their income to charity.

There are probably plenty of people around here swimming in debt (somebody recently asked in a Q&A with the local paper editors how she could stop going to the city's most expensive restaurants and start living within her means when she only liked expensive places), but lots of folks can stretch themselves and afford to get by while wasting a lot of money. It's not what my spouse and I have chosen to do, because we want to be able to live very responsibly and plan for a rainy day, but the longer you live with and around the money that tends to permeate high cost of living areas, the more it will seem normal to you.

Also, if it's really $1000/mo for a 2 br. apartment, your cost of living is still lower than mine is.

If I were you I wouldn't try to acclimate myself to the spendy habits of your surroundings. Instead I'd find friends who are frugal and work on maintaining your good financial habits. If you ever want one of those $4, $5, or $6K (plus!) houses, you're going to need them.

  • $1000/mo is a bit on the low end. A more common price is between $1200 - $1500/mo. I understand what you're getting at, however; it's good advice. – Corey Feb 18 '11 at 18:56

Housing, eh? Housing costs are driven by salaries and land availability. Over in the Bay Area, $1500/mo for a nice 1-bedroom apartment is a good deal... but a decent software engineer with ~4 years' experience can get $120k, easily. The standard benchmark of affordability of housing is spending a third of your income on it a year: that guy can afford about $3,333/mo on housing.

(If you don't fritter away the money and can keep your cost of living down and save money, you can really clean up, especially if you move elsewhere later.)

So, to stop thinking about it in terms of dollar value, first try to think of it in terms of time: 33% of someone's salary or a third of their time at work going for housing is pretty nominal. Beyond that, think about it in terms of opportunity cost: If you saved that extra $20, what exactly would you use it for, and how much of that goal does it represent?


And specifically regarding prices of housing, what factors drive prices in that regard? I mean, the houses are roughly the same... but almost 3 times as expensive.

Rent, like so many things, is tied to supply and demand.

On the demand side, rent is tied to income. People tend to buy as much house as they can afford, given that mortgage interest is deductible and public schools, financed through property tax, performs better in valuable neighborhoods. Raise the minimum wage and economists expect rents to go up accordingly. When employers and pensions offer COLA adjustments, it feeds into a price loop. During the past ten years, there was also some "animal spirits" / irrational behavior present; people feared that if they didn't buy now, home prices would outpace their growth in income. So even though it didn't make sense at the time, they bought because it would make even less sense later (if you assume prices only go up). There's also the whole California has nicer weather angle to explain why people move to SF or LA.

On the supply side, it's all about housing stock. In your old town, you could find vacant lots or farmland in less than 5 minute's drive from anywhere. There's far less room for growth in say, the SF Bay area or NYC. There's also building codes that restrict the growth in housing stock. I'm told Boulder, CO is one such place. You would think that high prices would discourage people from moving or working there, but between the university and the defense contractors triangle, they seem to have an iron grip on the market.

(Have you ever seen a cartoon where a character gets a huge bill at a restaurant, and their eyes shoot out of their eye sockets and they faint? Yeah... that's how I felt looking at some of the places around here...)

Remember, restaurants have to cover the same rent problem you do. And they have higher minimum wages, and taxes, etc. Moreover, food has to be imported from miles away to feed the city, likely even from out of state. In California, there's also food regulations that in effect raise the prices. If people are footing those higher bills, I wouldn't be surprised if they're racking up debt in the process, and dodging the collectors calling about their Lexus, or taking out home equity loans to cover their lifestyle.

  • The restaurant thing was a metaphor, referring to the prices of housing. I didn't think about it while writing my post, but eating out really is a lot more expensive. And +1 for "you could find vacant lots or farmland in less than 5 minute's drive". Very true: there were huge lots for sale, as well as tons of houses/apartments for rent everywhere. – Corey Feb 20 '11 at 2:58

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