Last week, an infographic from the Tax Foundation went viral showing the relative value of $100 in each state. As I wrote then: "the above data doesn't tell the full story. ... A large portion of the differences in price parity is based on the cost of rent or the comparable mortgage payments." If this were not the case, it would make sense for New Yorkers to shop in Mississippi for high-priced items. If you exclude housing, the real value of $100 doesn't shift nearly as much as you might think.
Read on to learn more.
The Tax Foundation calculated the value of $100 in each state by using data from the Bureau of Economic Analysis on regional price parities. The $100 level is based on the national average; each state's data is then relative to that level.
The main factor in these wild swings in the value of $100 is housing. By state, in terms of housing, your dollars go the furthest in Mississippi, where the relative value of $100 is $161.03. In the continental U.S., your dollars get you the least in terms of housing in California, with a relative value of $67.84. That means the same amount of money for housing is worth 135% more in Mississippi than in California.
While the housing-related value of $100 varies greatly from state to state, the value of goods you can buy doesn't vary anywhere near as much.
There's barely any variation from the national average. In the two most extreme cases, if you're buying goods in New York, your $100 will be worth $92.51 relative to the national average, whereas in Missouri your $100 will buy you $107.76 worth of goods compared with the national average. That 16% difference from bottom to top is nothing compared with the 150% difference between the bottom and top in housing.
There are a multitude of reasons that the cost of housing varies greatly. The cost of goods, though, doesn't vary nearly as much, as goods are easily portable, and thus any price differences can be arbitraged away. Also, given the prevalence of e-commerce outlets like Amazon.com, if the prices for a good are abnormally high in your area, you can usually buy online for less.
The exceptionally high prices in certain states generally owe to the challenges of transporting goods to the local consumers. A prime example is Hawaii, which is roughly 2,500 miles away from the rest of the U.S. Most goods need to be shipped to the state either by boat or by plane, so it is no wonder that a Benjamin will get you only $93 worth of goods compared to the national average.
New York City is another great example. The population density of the area and the fact that Manhattan is an island with limited access points make it time-consuming and expensive to operate trucks in Manhattan. Depending on the size of the truck and time of day, it can cost anywhere from $40 to $85 in tolls alone for a commercial truck to enter New York City. Trucks are also limited to certain roads, so once in the city, they cannot get around as easily as a car, and they still have to deal with all the traffic of a dense city, taking up more of the driver's time. Those costs get passed on to consumers in the form of higher prices.
Yet outside the New York City metropolitan area, goods in the state of New York are relatively cheap, even though the city, with its high prices and huge population, skews the state average to the most expensive extreme. In New York City metropolitan areas, $100 buys you $91.66 worth of goods, while in non-metropolitan areas your $100 gets you $101 worth of goods compared to the national average.
While the cost of living and the real value of housing vary greatly across each state, the cost of goods doesn't change nearly as much. If you're thinking of moving to a new state, the most important thing to consider is the housing costs; the cost of goods is secondary.
Find Dan Dzombak on Twitter, @DanDzombak, on his Facebook page, DanDzombak, or on his blog, where he writes about investing, happiness, life, and success. The Motley Fool recommends and owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.