Is Colorado’s Cost of Living Really “So High”?

As with most of my blog posts, this is speaking to folks with a decent income (say at or around the median household income or better), frequently with a fair amount of additional privilege. That’s generally who is taking my class or reading this blog.

In the financial literacy for Colorado teachers class I teach a frequent comment is some variation of, “But the cost of living in Colorado is so high!” That’s also the consensus among Coloradans in general. I’ve suggested before that, just like personal finance is “personal”,  inflation is also personal. While I don’t want to minimize the real issues many Coloradans face with making ends meet (and that’s especially true for low-income Coloradans), I think the generally agreed upon consensus that the “cost of living in Colorado is so high!” is at least partially (and perhaps mostly) incorrect.

Here are the latest cost of living metrics by state (first quarter 2023). Colorado is the 18th highest state (out of 52, as it includes DC and Puerto Rico) with an index of 105.5 (100 is average). So, at first blush, Colorado is about 5% higher than “average” in the United States. So definitely our overall cost of living is “higher” than average, although I’m not sure I’d call being ranked 18th “so high.” But you also have to look at the individual categories that make up that index.

The weightings for each category are:

• Grocery: 17.26%
• Housing: 30.9%
• Utilities: 10.21%
• Transportation: 7.54%
• Health: 4.42%
• Miscellaneous: 29.67%

You’ll notice that the index varies fairly substantially by category, with housing leading the way at 116.1, but utilities at only 90.9. Which means that, just like with inflation (and directly related), we need to dive a bit deeper to see what an individual Coloradan’s cost of living index actually is.

So, for example, let’s look at a Coloradan who already owns their own house (and has for at least a couple of years, which means that if they still had a mortgage they were able to get a huge financial boost by refinancing at historically low rates below 4% and often below 3%). Well, if you remove the housing category from the index, Colorado’s index drops to 101. So, yes, still higher than “average” for the U.S., but only by 1%. Then if that same Coloradan also already owns their own car and you remove transportation from the index, Colorado’s index drops to 100.2 – just about average for the U.S. (And the “Miscellaneous” category is at 103 and weighted at almost 30%, and that includes a whole lot of discretionary spending, so likely we could fairly easily get it down below 100.)

To be clear, there are a lot of variables here. Certainly folks who live in mountain resort towns have a higher cost of living (but it’s also important to remember that they’ve chosen to live there and they get the benefits of living in such a  beautiful place). And individual circumstances vary, of course, so an “index” will never take everything into account. But I would suggest that for the average Coloradan (median household income in the U.S. is $70,784, in Colorado it’s $84,954), one who is not looking to buy their first house or purchase a new car (or has recently purchased a car and financed it, which is something I encourage folks to never do except perhaps for their very first car), the cost of living in Colorado is actually…about average (for the United States).

So why is this important? Well, perhaps it isn’t. But I think many Coloradans use the perception that the cost of living in Colorado is high as a rationalization for why they struggle financially and “can’t get ahead.” Again, none of this is meant to minimize the very real issues that many folks, especially low income folks, face. But I think it’s important for people to realistically look at their income and spending and not use an at least partially incorrect assumption about our cost of living to justify not being able to “get ahead.” Instead, everyone should sit down and look carefully at their income, their spending, and crucially at many of their choices in order to make decisions that perhaps better align with their values and goals. Spending isn’t bad, but spending on things that you don’t really value is an area that everyone should be evaluating in the context of living “their” good life.

Addendum: Colorado is also a very low-tax state, including property taxes.