How much was that dollar worth? Interesting money tool

In a history article for a client journal, one of our authors mentioned Measuring Worth, a nifty tool that allows you to compare a variety of money-related values over periods stretching back to 1774.  Among other things, it will calculate the relative worth of the dollar. Enter a specific sum and a year, and then ask what it would have been worth in a later  year. The engine disgorges the equivalent according to six different indicators: the consumer price index (CPI), the gross domestic product (GDP) deflator, the consumer bundle, the unskilled wage rate, the GDP per capita, and the GDP.

The first two are ways of measuring average prices. The third (consumer bundle) shows the average value of a household’s annual expenditures; the unskilled wage rate provides a way to compare wages over time. The GDP per capita is another way to compare income over time, and the GDP itself, the market value of all goods a country produces in a year, shows “how much money in the comparable year would be the same percent of all output.”

More on this feature in a minute.

First, though, let’s look at a feature of special interest to personal finance enthusiasts: Measuring Worth also has a tool that shows how much savings would have grown over time. Enter a value and a date, and then ask how much that value would be worth at another date (up to this year), and it will tell you the return on a short-term investment, a long-term investment, and a stock market investment.

So…let’s say your child is 19 years old now, and you’d like to send her to college. When she was born, in 1990, your parents gave you $1,000 to invest toward her education. If you’d put the money in an excruciatingly safe short-term asset, today it would be worth $2,060. Invested in a long-term asset with a term of 20 years, it would have yielded $4,973. And had you put it in a Dow Jones Average portfolio, you would have $4,196, a middling performance.

Well, what if your own parents gave you $1,000—say, when you were born—and now you’re about to retire? If you were 65 today, the gift would have come in 1944 (and it would have been a lot of moola in those days!). Assuming you kept that investment separate and didn’t add more cash other than reinvesting proceeds, how far would it go today toward supporting you in your old age?

Short-term investment: $16,457.53
Long-term investment, 30-year term: $32,816.67
DJA portfolio: $78,449.64

Whoa! Over a really long term, the stock market beats the other two investment modes, hands-down.

I wonder how our college girl would’ve been doing before the Bushies screwed up the economy. How much would her stock portfolio have been worth a couple of years ago, when she was 17?

Ah hah! $4,918. In the stock market, her savings would have fallen off $722 over the the year between 2007 and 2008. In a long-term investment instrument, it would’ve been worth $4,549 in 2007, $424 less than the most recent value. It appears that given competent national leadership that recognized the importance of regulating financial markets and was capable of an intelligent response to 9/11, she might have been better off in stocks and bonds.

Entertaining, isn’t it?

Now for the money story:

At the time my father was born, in 1909, his mother had about $100,000. She’d inherited this small fortune from her father, who had made it freighting buffalo hides out of Oklahoma into Texas. Also at about the time my father arrived, her husband ran off. He eventually was found dead by the side of a rural Texas highway. This left her alone with an infant, a change-of-life baby. My father had two elder brothers, the youngest of whom was 18 years older than he was. By the time he was born, both men were out of the house with families of their own.

She became involved with a Christian church on the fringes of mainline Protestantism, and she also became interested in spiritualism. She donated copious amounts to both causes. By the time my father was about ten years old, these worthies had sheared her of every penny that she had. She was left destitute.

Her home was taken away for taxes. She also lost a commercial property and another house she owned. The two older brothers, who knew nothing of this until they returned home and found her on the street, fell out over the fiasco. Tom, the eldest, was a ranch foreman who, of course, lived out in the sticks. He felt his middle brother, Ed, who lived in Fort Worth where their mother lived, should have been keeping an eye on her finances. The brothers were permanently alienated as a result of the bad feelings that arose in the wake of their mother’s impoverishment.

My father also was permanently affected. He developed a lifelong hatred of organized religion (his skepticism—shall we say—is the reason that to this day I will not donate to a church), and he also conceived a passion about money. He decided that, as his life’s goal, he would earn back the hundred thousand dollars.

And he did.

You understand, he was not a sophisticated man. He dropped out of high school in his junior year, lied about his age, and joined the Navy. He went to sea all his adult life, ultimately became a master mariner, and retired at the age of 53, when he achieved his goal of accruing $100,000 in savings. Details like the relative value of money were largely beyond his ken. Though he understood that a hundred grand didn’t make him a wealthy man in 1962, he had no way of anticipating the double-digit inflation of the 1970s. By the time that was over, the nest egg that would have kept him comfortable wasn’t worth enough to support him through his old age in a fashion other than basic poverty.

Luckily, he was a very frugal man by nature, and so it didn’t much matter: his lifestyle wouldn’t have changed, one way or the other.

I have always wondered what that $100,000 of 1909 would be worth in today’s dollars. Let’s enter it and the date of my father’s birth into the Measuring Worth relative value calculator. Current data, we’re told, are available only up to 2008. According to the various measures, today the dollar value of her inheritance would be…

CPI: $2,441,007.10
GDP Deflator: $1,777,507.10
Value of consumer bundle: $5,009,823.18
Unskilled wage: $10,307,228.92
Nominal GDP per capita: $13,314,632.87
Relative share of GDP: $44,808,290.00

In terms of purchasing power, my grandmother’s hundred grand would have been worth $2,441,077.10 in 2008. LOL! Think of the McMansion I could’ve bought with that as a down payment!

What if she had put her inheritance in the stock market, instead of diddling it away on her religious delusions? Invested in a nice, balanced portfolio, by the end of 2008 it would have been worth $16,595,085.85.

Well. Any way you look at it, if she been a little smarter about money and a little less inclined to woo-woo, today I wouldn’t be worrying about how I’m going to get by in retirement!

My father hugely underestimated the amount he would need to live comfortably into his mid-80s. Of course, without his mother’s crystal ball he couldn’t have anticipated the inflation that ate up his savings…but I think, given the way the government is spending money in the wake of the crash of the Bush economy, we can expect a similar inflationary period in the near future.

How much would I need in savings to have the equivalent of the $100,000 he had managed to earn back by 1962?

CPI:  $711,510.24
GDP Deflator: $569,106.07
Value of consumer bundle: $879,310.34
Unskilled wage: $809,366.13
Nominal GDP per capita: $1,510,749.04
Relative share of GDP: $2,465,665.02
Purchasing power: $711,510.24

Hm. If the least of these—$569,106.07—is what I’ll need to survive in moderate comfort (or not!), then I’m in deep trouble. Eighteen months ago, my savings were close to that. But today they sure aren’t, thank you very much, George and friends!

Welp, too late now. There’s not a thing I can do about it, so there’s no point in fretting. Tra la!

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Miranda August 27, 2009 at 7:52 am

That really is a cool financial tool! And it can really put things into perspective…

Sam Williamson August 27, 2009 at 8:44 am

You have done a wonderful job of discussing how to use some of the information on our website. We are pleased to be of service.

Thank you,

Samuel H. Williamson
President of MeasuringWorth
sam@mswth.org

The Dividend Guy August 27, 2009 at 9:29 am

I have not seen that tool before. Made me realize how much money I have actually given up over the years!

frugalscholar August 27, 2009 at 1:22 pm

This is just fascinating. It suggests that if we can hold out for a while, without drawing down too much, all will be well. Or well-ish. Maybe.

Janet August 27, 2009 at 9:51 pm

Thanks for the great post. I especially appreciate the relevant examples. I was also surprised by how much the GDP must have grown in the last example for the large amount of money needed to be the same share of the GDP.

Revanche August 27, 2009 at 9:56 pm

The stories and analysis are fascinating, but do leave me with a bit of a bah humbuggish feeling on the side. Probably mostly a side effect of the 106 degree heat today. ;P

funny August 27, 2009 at 10:14 pm

@ Revanche– What? A chilly 106? Brrrr! It was 110 here, around 5:00 p.m. Still hovering at 100 about 8:30, when the dog had to be walked. Nothing like a little balmy weather to hone the sense of humbuggitude. :-)

Granny August 14, 2011 at 8:43 am

I found this story about the grandmother’s giving away of her money to be very interesting. I, too, am a grandmother who has given away most of my multi-million dollar inheritance….although not to a church or any organized religion.
I have given my money away to my grown children and to many of the Poor people with whom I am friends. It is very gratifying to have done so and in compliance with the Bible’s teaching on charity and giving. What we have is given in order to share with others.
God blessed Abraham so that others might be blessed through him.
In I Chronicles 29:14 King David prays this prayer of wonder and thanksgiving to God:
“But who am I, and what is my people, that we should be able thus to offer willingly? For all things come from you, and of your own have we given you ”
Charitable giving is God’s divine recycling plan.
It all comes down from Him, to and through us, to others and back up to Him. That is the real meaning of wealth. IMHO.

funny August 14, 2011 at 9:34 am

Hi, Granny–

Thanks for your comment! And how true.

It must be noted, though, that much of my grandmother’s wealth was given not to the church but to scam artists: fake “spiritualists” who held phony seances at her house and crooked contractors who persuaded her to make many unneeded and expensive additions to her home, leaving her utterly impoverished. The church, too, it should be noted, abandoned her in her poverty and did nothing to help her or even visit her when she was withering away in a nursing home.

Charity, IMHO, begins at home. We live in times when our sons and daughters have little hope of remaining in the middle class, because the middle class in this country is going away. Thus our children, assuming they grow up to be half-way decent human beings, are the ones who should be first in line to inherit what remains, upon our leaving, of our lifetime savings..

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