How to make your future go up in smoke
The affluent are better off today, relative to others, than they were 20 years ago. They also live longer than people who are less affluent.
So, who can we blame? Surely someone is at fault.
Since this is a presidential election year, we could join the crowd and blame "the system." But I've got another candidate: smoking. Its costs and its effects are singularly well suited to explain the visibly growing gap in both wealth and life expectancy between those at the top and those closer to the bottom. To be sure, smoking isn't the only cause. But it sure looks like a smoking gun.
Before going on, I have a confession to make. I was a smoker. I started in college and didn't stop, except for failed attempts, until my son Ollie was born. I was 30 then. I really liked smoking. I didn't mess around with the sissy filtered brands. I smoked Pall Malls, Chesterfields, Camels and Lucky Strikes. It was a two-pack-a-day habit.
I didn't quit because I calculated the lifetime cost of the habit. I didn't quit because I wanted to extend my life. I quit because I wanted to experience breathing into my lungs again - it felt like I was breathing down only to my Adam's apple. And if I wanted my son not to smoke, it might help if he didn't see me doing it every day. It's a tough habit to break.
Today, in spite of clear evidence that it has absolutely no redeeming benefits, is harmful to health and a major cause of death, an estimated 40 million Americans still smoke. So let's consider the economics and the health impact of smoking:
- Today the average price of a pack of cigarettes is about $5.50. You can pay a lot more, like $13.50 a pack in New York, but you can also pay a bit less. A pack a day costs $165 a month, most likely more. If the same sum were invested to earn 6 percent annualized over 40 years, it would accumulate to about $328,600. Earn the 8 percent return that is close to historical averages, and the accumulation would be $576,000. That's more money than most people have.
- According to the Centers for Disease Control and Prevention, the life expectancy for smokers is "at least 10 years shorter than for nonsmokers." Ten years also happens to be the life expectancy difference between the top 10 percent of income earners and the bottom 10 percent. Use that $328,600 to finance an additional 10 years of life (
(using current market rates), and you'll have $3,026 a month. Get lucky and accumulate that $576,000 sum, and you could finance an additional 10 years of life at $5,304 a month.
We could pick these numbers apart, but this back-of-the-envelope figuring suggests that quitting smoking would literally pay for the longer years of life for most workers.
- A Gallup poll in 2008 found that smoking and low income were directly related. While only 13 percent of people with incomes over $90,000 smoked, 34 percent of those with incomes of $6,000 to $11,999 smoked. Among the many workers who earn $24,000 to $36,000 a year, 26 percent smoked. A $165-a-month habit amounts to 5.5 percent of income for the top of that range. That's nearly enough to capture the match of most 401(k) plans.
Now consider a few more facts. The CDC estimates that a staggering 480,000 people die each year from the effects of smoking. That's 10 times the 47,000 deaths annually from drug overdoses. Put it this way, with the maximum estimate of tobacco industry employment at 2 million, one American has to die, every year, for every four jobs in the industry.
That's a really high price to sustain an industry that has zero public benefit.
So maybe we need to go back to the "it's the system" idea. We know that money talks. We know it has had the ear of our elected representatives, regardless of party, for more than half a century. And they are still listening. Altria spent $9.6 million in 2015 talking into those ears. Philip Morris International spent $4.7 million. Reynolds American spent $2 million.
• Scott Burns is a principal of the Plano, Texas-based investment firm AssetBuilder Inc., a registered investment adviser.