What Does a Smoke Break Really Cost?

I was recently struck by how much money Americans spend on healthcare every year. The figure is astounding: almost 18 percent of all spending in our economy goes to health care. So I thought it might be interesting to break out some of the costs of one of America’s favorite bad habits: smoking. Of course, this goes well beyond just the outright cost of a pack of Camels. In 2004, the Centers for Disease Control (CDC) estimated that the cost of tobacco use to the economy from medical costs, lost productivity and other factors, was about 193 billion dollars each year.

According to the CDC, almost 14 percent of Californians use tobacco in all its forms. While this may be the second lowest rate in the country, I frequently see motorists nonchalantly flick a cigarette butt out of a car window, and the smoking area outside my building is frequently crowded.

So, how much does that smoke break cost every year?

The most obvious cost of that cigarette is the price you pay at the counter. If a pack of cigarettes costs $5.50, smoking just one pack every day adds up to just over 2,000 dollars per year. Over 20 years, that’s a cost of almost $54,000 with inflation. If you saved and invested that money instead, even at just six percent per year you could have $96,000 in your pocket. That’s a difference in real wealth of $150,000 over 20 years. Over 40 years, it’s almost $700,000.

But what about the hidden costs of tobacco use? Users of any tobacco product pay much more for life insurance than do non-users, largely because they are at significantly higher risk of dying early. For example, a 47 year-old male smoker would pay $3,000 per year for a $500,000 20-year term life insurance policy. The exact same coverage would cost a non-smoker in good health just $725, a savings over the 20 year policy term of $45,500.

Health insurance can also cost as much as 40 percent more. And because smokers tend to have more medical problems than non-smokers, they also tend to use more health care services. A New England Journal of Medicine study found healthcare costs for smokers are as much as 40 percent higher than for those of non-smokers.

Smokers can also pay higher costs for homeowners’ insurance, because of the higher incidence of smoking related fires. Auto insurance rates can be higher, too, because statistics show that smokers are involved in more accidents. Speaking of homes, even the value of a house will be affected by smoking. Beyond the accumulated grime of smoke and tar, smoking leaves a distinctive smell that can cost tens of thousands of dollars to remove. Renters who smoke can have higher costs for cleaning or foregone damage deposits. Even a smoker’s car will often be worth less at sale or trade in than the same car owned by a non-smoker, because of the persistent odor.

Finally, there’s employment. There are studies which show that smoking results in a loss of income of up to 11 percent compared to non-smokers in similar professions. Just think about the time it takes to leave work, light up, and clean-up. Hourly workers are most affected, but even salaried employees who disappear for an hour or two each day will be noticed. And lost earnings have a very long-term impact, including lower Social Security and/or pension benefits.

I’m actually not trying to write a sermon on the evils of smoking. I’m using smoking as one single example of the high costs of poor health, focusing on one health habit over which we have control. This is about the financial costs of a personal choice. Unfortunately, the costs of that choice are clearly not obvious at the time it is being made. Who knew a six dollar pack of cigarettes could be so expensive?

Rick Brooks is Vice President for Investment Management with Blankinship & Foster, LLC, a wealth advisory firm specializing in comprehensive financial planning and investment management. Rick can be reached at (858) 755-5166, or by email at brooks@bfadvisers.com. Rick and his family live in Mission Hills.

Category: Business, Health & Fitness