Question of the Day: What’s the real value of $100 in each state?

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May 23, 2021
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Question of the Day, Budgeting

Answer from Tax Foundation:

Purchasing power (a.k.a. cost of living) becomes a critical consideration for students considering where they would like to live or even go to college. $100 will buy you a lot less if you attend college or live in New York City vs. rural Maine. This national map shows how purchasing power varies by state.

How to read this chart:

To better understand, imagine a store offering a range of goods and services, each for sale at the national average price for that particular item. Now, imagine a shopping cart filled with $100 worth of items from that store. In Hawaii, $100 buys about 85 percent of the goods in the cart thanks to the high prices there. In other words, $100 in Hawaii feels more like $84.39, compared to the national average. In Mississippi, the opposite is true. With $100, you would be able to buy the cart’s contents and more: the equivalent of $116.69 of goods and services from the national-average store.

 

Questions:

  1. Of the major costs of a typical family, which do you think differ most by geography and account for these purchasing power differences?
  2. Will the cost of living impact how you think about where you want to live and work in the future?
  3. Do you think that incomes and purchasing power are related? Are companies required to pay their employees more to compensate for higher costs of living?

Click here for the ready-to-go slides for this Question of the Day that you can use in your classroom.

 

Behind the numbers (Tax Foundation):

"Regional price differences are strikingly large; real purchasing power is 35 percent greater in Mississippi than it is in New York. In other words, by this measure, if you have $50,000 in after-tax income in Mississippi, you would need after-tax earnings of $67,500 in New York just to afford the same overall standard of living.

It’s generally the case that states with higher nominal incomes also have higher price levels. This is because in places with higher incomes, the prices of finite resources like land get bid up. (This is especially true in cities.) What is also true is that places with high costs of living pay higher salaries for the same jobs. This is what labor economists call a compensating differential; the higher pay is offered to make up for the low purchasing power."


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Students can compare the cost of living in the NerdWallet: Cost of Living Calculator!

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About the Author

Mason Butts

After graduating from UCLA with a Master's in Education, Mason spent 5 years as a science educator in a South Los Angeles public high school. He is committed to supporting the holistic growth of all students and empowering them to live a life of relational, academic, and financial success. Now settled in the Bay Area, Mason enjoys facilitating professional developments and partnering with educators as they prepare students for a bright financial future. When Mason is not building curriculum or planning a training, he can be found cycling, trying new foods, and exploring the outdoors.