money Why would college grads expect more than $100,000 to start? It's the cost of living, experts say
College students who expect to make more than $100,000 right out of school might seem out of touch with reality, but that six-figure income is now in range with what Americans need to earn in order to secure some of the basic amenities previous generations enjoyed, experts said.
A survey, conducted by Real Estate Witch, found that undergraduate college students overestimated their starting salaries by 88%, with students expecting to make about $103,880 in their first post-graduation job – nearly double the average starting salary at about $55,260.
Despite undergraduate students’ high wage expectations for entry level positions, they may not be as out of touch with reality as it may seem.
“College graduates are looking for six-figure positions because that honestly is what it takes now in order to experience some of the financial comforts that previous generations have been able to experience,” Danetha Doe, an economist for Clever Real Estate, told USA TODAY.
The average cost of living in the United States has greatly outpaced the growth of wages and salaries over the last five decades as wages for many have remained stagnant, causing concern for financial security among current college students – including the ability to purchase a home.
►Wages and purchasing power: College students expect to make $103,880 after graduation – almost twice the reality
The median home price is currently more than $400,000, and an individual would need to earn about $125,000 to make that home affordable, Doe said. The median income for Americans is between $60,000 to $65,000.
According to the U.S. Census Bureau:
About 38% of Americans under 35 years old are homeowners
Almost 62% of Americans age 35-44 are homeowners
About 75% of Americans over 65 are homeowners
Inflation, which hit 8.6% in March, has also significantly outpaced salary growth since 1970, Doe said. Over the past 50 years, inflation has increase about 2% to 3% a year while income has only grown 0.3% each year, she said.
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“While it may seem like they are out of touch with reality because the average starting salary is half of what they expect, when we look at how much it actually costs to live a financially comfortable life in the United States, their expectation isn’t that far off,” Doe added.
The reason for the stagnation of wage and salary growth in the last 50 years is widely debated among economists, including the institutional and structural factors that determine wage growth.
Hourly wages for nonsupervisory and production workers in 2022, which are tracked by the Bureau of Labor Statistics, are almost the same as 1972 once adjusted for inflation, according to Chris Tilly, the chair of the department of urban planning at the University of California, Los Angeles.
“That kind of baseline reflects some institutional realities. Unions are weaker. The federal minimum wage is, in inflation adjusted terms, much lower than it was in the early 70s,” Tilly told USA TODAY. “So there’s a set of things that were sort of raising the bottom, and … those things that sort of secured the bottom aren’t really there anymore.”
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While the college students’ salary estimations aren't unreasonable, they reflect more wishful thinking than a true estimate, Tilly added.
“People’s wishes are pegged to the growth in particularly these key costs, which are very visible costs to young college grads,” Tilly said. “Wages and salaries have not kept up with housing costs, have not kept up with higher education, tuition costs and so that sort of disjuncture, that mismatch between the reality of costs and their reality of pay, I think is distorting the way that a lot of young people are looking at the world.”
The survey, conducted online with 1,000 students between March 23-26, found that nearly 1 in 3 college students worry about not making enough to live comfortably post-graduation.
The survey also found that:
48% of students said they felt that college was worth the cost.
43% of students said they would graduate with more than $30,000 in student loans
33% expect to graduate with $50,000 or more in student debt
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While the cost of living is critically tied to location, in most of the largest metro areas – based on living wage calculators – the average starting pay of $55,000 is not necessarily enough to live on, according to Tilly.
“There’s always ways to survive, and young people are famous for doubling up and … surviving on less money," Tilly said. "But the living wage calculators are assuming what we think of as kind of an acceptable standard, having adequate housing, to be able to afford a car and put gas in it and so on. And no, it’s not enough for that."
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This article originally appeared on USA TODAY: Do College graduate salary expectations seem high? It's inflation
