How much does smoking cost over a lifetime? More than you think.

The message about smoking's health toll has been well-heard. Since 1964, smoking-related illnesses have claimed 20 million lives, including 2.5 million nonsmokers exposed to others' tobacco smoke. The result has been a decline in smoking rates and rise in laws restricting smoking.

But the out-of-pocket costs of tobacco use remain staggering. Financial website Wallet Hub ranked every U.S. state by the lifetime and annual costs of smoking. South Carolina is eighth from the bottom in the newly released report because of relatively low cigarette and tobacco tax costs, but the overall price tag is still sobering: $23,586 per year per S.C. smoker, and more than $1.2 million over a lifetime. Lifetime figures in the report use a span from age 18 to 69, the average age smokers die.

Those costs include the total out-of-pocket expense ($1,814 per year), additional health costs because of smoking-related illness, income loss (a national study attributed about 8 percent of the wage gap between smokers and non-smokers to smoking) and the big one: "financial opportunity cost".

Financial opportunity cost refers to earnings on money spent on tobacco had it instead been invested in the stock market, assuming the average return rate for the S&P 500 adjusted for inflation. For S.C. smokers, that amount is $15,281 per year and $779,322 over a lifetime.

Scroll below the state rankings below for more details about Wallet Hub’s methodology.

Methodology

In order to assess the impact of tobacco use on a smoker’s finances both over a lifetime and in a single year, WalletHub’s analysts calculated the potential monetary losses — including the cumulative cost of a cigarette pack per day over several decades, health-care expenditures, income losses and other costs — brought on by smoking and exposure to secondhand smoke.

The authors assumed an adult who smokes one pack of cigarettes per day beginning at age 18, when a person can legally purchase tobacco products in the U.S. They also assumed a lifespan thereafter of 51 years, taking into account that 69 is the average age at which a smoker dies.

Out-of-Pocket Costs: To determine per-person Out-of-Pocket Costs Over a Lifetime, Wallet Hub took the average cost of a pack of cigarettes in each state, multiplied that figure by the total number of days in 51 years. For Costs per Year, it multiplied the average cost by 365 days.

Financial Opportunity Cost: To determine the per-person Financial Opportunity Cost, it calculated the amount of return a person would have earned by instead investing that money in the stock market over the same period. It used the historical average market return rate for the S&P 500 minus the inflation rate during the same time period to reflect the return in present-value terms.

Health-Care Cost per Smoker: Direct medical costs to treat smoking-connected health complications are one of the biggest financial detriments caused by tobacco use. To calculate related health-care costs, Wallet Hub obtained state-level data from the Centers for Disease Control and Prevention — namely the annual health care costs incurred from smoking — and divided that amount by the total number of adult smokers in each state.

Income Loss per Smoker: Previous studies have demonstrated that smoking can lead to loss of income — either because of absenteeism, workplace bias or lower productivity due to smoking-induced health problems — and create a wage gap between smokers and nonsmokers. To represent the negative relationship between earnings and smoking, it assumed an average 8 percent decrease in the median household income for each state. It arrived at this figure after accounting for the fact that, according to a recent study from the Federal Reserve Bank of Atlanta, smokers earn 20 percent less than nonsmokers, 8 percent of which is attributed to smoking and 12 percent to other factors.

Other Costs per Smoker: Nonsmokers are generally entitled to a homeowner’s insurance credit of between 5 and 15 percent, according to the Independent Insurance Agents & Brokers of America. Given that fact, the study authors assumed an 11.1 percent increase (i.e. the inverse of a 10 percent credit, or the average between the two percentages) in the average homeowner’s insurance premium for each state to represent the penalty cost for smokers.

They then took into account the costs for victims of secondhand-smoke exposure. To calculate these costs, they used the per-nonsmoker expenditure in the state of New York as a proxy. They then multiplied that figure by the number of nonsmokers in each state to obtain the total costs of exposure to secondhand smoke at the state level. Finally, they divided the resulting total by the number of smokers in each state. This approach assumes that, in a perfect society, smokers would also pay the costs related to the harmful smoke that tobacco releases into the air.

Formula for Financial Cost of Smoking: Financial Cost of Smoking = Out-of-Pocket Costs + Financial Opportunity Cost + Related Health-Care Costs + Income Loss Due to Smoking-Related Issues + Increase in Homeowner's Insurance Premium + Secondhand Smoke-Exposure Costs

Sources: Data used to create this ranking were collected from the U.S. Census Bureau, Bureau of Labor Statistics, Centers for Disease Control and Prevention, Insurance Information Institute, NYsmokefree.com, Federal Reserve Economic Data (FRED), Kaiser Family Foundation and the Independent Insurance Agents & Brokers of America.

This story was originally published January 17, 2017 at 11:37 AM with the headline "How much does smoking cost over a lifetime? More than you think.."