Monday, April 09, 2007

Cars

"There are a number of articles and advisers that assist people with financial planning. Two Sunday's ago in the Chicago Tribune they attempted to help a couple (two women cohabitating) who were being crushed by their adjustable rate mortgage called "The American Dream is Breaking the Bank."

The two women can barely make their mortgage payments. On top of that, they own two cars - a 2003 Dodge Durango and a 2004 Chrysler Pacifica. One of them is a police officer and the other is an assistant to an adoption lawyer. They live in Eustis, Florida.

Thanks to wikipedia you can immediately pull up demographic facts for Eustis. Per wikipedia:

The median income for a household in the city was $32,032, and the median income for a family was $39,519

For the sake of discussion let's assume that the two women are right at the family median income of $39,000. Thus these two women went out and purchased (new, let's suppose, since we don't know for certain) two cars with a likely cost of more than $40,000. I am giving them the benefit of the doubt on this; a new Pacifica is more than $25,000 and a Durango over $30,000.

It is astounding to me that the two women decided to purchase cars that are equal to one years' annual income. Quick math on annual income is 1/3 goes to taxes (sales, social security, property taxes, and federal taxes), 1/3 goes to necessities (food, fuel, clothes, etc...) and then you have 1/3 left for everything else. They have a child, to boot (and one that supports herself). Basically every dollar left over would have to go towards car payments if they just wanted to pay them down over a five year loan and have a little left over for repairs.

I have driven through small towns across the United States where wages are necessarily lower than the big cities. Yet the omnipresent large trucks and expensive cars always surprise me; they must big a giant chunk of available income in those towns. It isn't much of an exaggeration to say that most people in small towns work to pay for their cars.

This is part of the overall fetishization of cars. I fall prey to it - lots of people do. I look at advertisements for new cars and imagine driving a 350Z or some other cool car.

But it is another thing to essentially work to pay for your car, which is pretty much a means of transportation, and depreciating rapidly, to boot. In New York City you are working for the incredibly expensive real estate and related expenses; and in small towns you are working to pay off that big new truck.

Everyone has one, right? Thus I need one, too...

1 comment:

Jonathan said...

Good points. I think there may be additional things going on, at least in some cases:

-Lower cost of car ownership (parking, insurance, repairs) outside of big cities.

-Car is more valuable in small towns and rural areas, because you can't easily travel or get much done without one.

-Some people in small towns make a lot of money and can afford the cars.

It's also true that lots of people overleverage themselves and don't understand how to use debt.