Is Your Car Buying Decision Hijacking Your Retirement Savings Plans?

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Jul 22, 2018
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Purchase Decisions, Budgeting

We know that your students love talking/thinking/dreaming about cars (even if data suggests it's less than previous generations). In fact, our Buying a Used Car activity in our Bonus Unit is a  student favorite. This activity can be used to pivot into a conversation about retirement savings also. How? The Wealth of Common Sense blog makes that connection between car buying and retirement savings. From a Ben Carlson tweet:

Looking at prices for new SUVs and came to the realization this has to be a huge impediment to ppl saving for retirement. These things are unbelievably expensive and I see them all over the roads

He shares data that 2/3 of new car purchases are SUVs and that they are quite costly to purchase and maintain:

By my calculations, we’re looking at an average MSRP in the range of $36.2k to $55.1k or an average monthly payment of roughly $608 to $924 (see my payment assumptions at the bottom of the table). This doesn’t include taxes and all of the crazy fees they charge you or the additional outlays for gas. And I’m going to assume it’s few and far between that actually pay the lowest MSRP because most people want all the bells and whistles.

He also included a chart that I found intriguing (see below) showing a list of cars ranked by the percent of original owners who have kept them for 15+ years. 

 

Why does this matter?

  • It's a measure of reliability after all who would possibly keep a car for 15 years if it wasn't reliable? 
  • It reduces the cost of ownership for a car if you can depreciate the purchase price over 15 years. 
  • With many experts saying you should never purchase a new car (check out this Two Cents video on how cars can keep you poor), this list becomes a good shopping list for used car buyers too as it shows reliable brands. 

Ben goes on to highlight how important this car-buying decision given the magnitude of the fixed cost it creates for the foreseeable future. So, while saving that latte can have big effect over the long-term it requires some behavior modification. Making wise car purchase decisions, on the other hand, are a one-shot deal that can have even greater financial effects. 

 

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.