Most of our experience in the united States is that of extreme luxury when compared to the greater experience of global humans. Newer cars, larger homes, cell phones, low cost/ highly available food. We have anything and everything we need to survive right at our fingertips. The greater majority of us cant get enough of upgrading lifestyles. And, more and more, that is being funded by debt. Trickling away our overall wealth to the corporations and 1% who benefit from that debt.
~ A black 2023 Kia pulled up to the bottom of my friend’s driveway in Mill Valley, CA. An overly kind and excitable man jumped out and greeted me at the trunk. He warned me of the car's wildly swinging automatic door as he took my bag from my hands. His energy was positive. His care for me as a rider was as good as I have seen with any Uber driver in my travels. Once loaded in he offered me water, a cell phone charger, and asked me if the temperature was set just right. We began our conversation exchanging pleasantries. Discussing general information about our lives and the different seasons of our respective homes. We passed through many different neighborhoods from mill valley to San Fransisco Airport. I asked about the prices of real estate where he lived, as I always do when I am in a new area. Im the type that likes to pull out the Zillow app as soon as the plane's wheels hit the ground. I like to know where I am, and what the opportunities are like. Everything was fairly standard, fairly innocent, until 1 comment slapped me in the face like cold water from a bucket. In his quick, almost frantic, and quirky delivery he said; “I work to pay for my car and my rent, that is all. $2500 for rent, $1500 for this car.”
I felt like i was being waterboarded with shock. Less by the rent, which if one assumes he has a family, is fairly standard considering San Fransisco standards. But $1500 for a car payment! "What the Hell?!"
I guess through all of the Dave Ramsey youtube shorts I've watched, and money statistics ive read, I've never had an in person interaction where a fellow human of kind nature and seemingly solid work ethic admit to me that they had a car payment of $1500 a month.
Now one could say he is an uber driver, and as a driver, his vehicle is his tool for income, and therefore is an asset…..but that would be a ridiculous justification for that payment. Somehow I also have a feeling he hadn’t started an LLC, and likely wasn’t writing off his interest payments.. never-mind classifying his vehicle as a depreciating asset on his balance sheet, because if he had a balance sheet he would have already realized how ridiculous $1500 a month going to a car payment is.
To put my shock into perspective, here is the math I speedily executed from the back of his kia; the average uber drivers hourly earnings topping out at $22/hr that would take 68 hour a month to pay off the car. Thats nearly half of his work hours in a month. For a car. Start counting up costs for insurance, oil changes, tires, and other associated with the vehicle and you get the point.
I couldn't believe it.
Now to be clear, I selected the lowest cost level uber when I booked the ride. I would've got in any car that arrived: kia, honda, shitbox, brand new, used, didn't matter. I just wanted a ride, nothing special. Though I appreciated the quality of the vehicle, it didn't equate to any larger tip or revenue for him on that ride. That got me to thinking as we drove down the highway passing brand new teslas, Kias, Mercedes, and the like. How many of these vehicles are financed? I’ll tell you.
-85.54% of new cars are purchased via some form of financing. And 65.17% of all cars are.
-average interest apr of 7.03% for new cars and 11.35% for used cars (9.19 overall average APR%) in 2023
-Average monthly car payment of $629.50 across the board.
-$57.85 / month in interest or about $694 a year.
During your lifetime of driving, which should average out to about 65 years, if you were to contribute just those interest payment to a very conservative 5% money market account you would have just under $312,450.
Now.... HOLD ONTO YOUR SOCKS!.... at the average lifetime return of the S&P 500 of 10.13% that would be just over $3,568,553.
THIS IS WHY THE BANKS WANT TO LEND YOU MONEY!
Do we need vehicles that are less than 10 years old? Do we need the newest in luxury brands? To survive? Even to thrive? Are they assets that return us value or cash flow?
To all of these questions in most cases… No
The credit card, automotive, and retail companies want you to want new things because of the math I just displayed above. They extract your wealth on a slow drip. Every website has payment options for every item for this exact reason!
As I sat in the back of this brand new kia, I remember my grandmother's story about receiving an orange for Christmas as a child so vividly. Her migration to the US from Scotland is only two generations back. Not 75 years ago, from oranges for Christmas as novelties, to brand new $60k vehicles as necessities...on credit. My grandmother never owned a new car in her whole life. My parents haven't either. And either have I. Used all the way. My dad told me one of the most important things about vehicles you need to know when I was 15 years old, “the most a cars value changes in its entire lifetime is the moment a new car is driven off the lot.”
Now for the second part of my friend’s equation, which as stated before, regionally, is considered a “reasonable” rate. When added to the greater financial equation of his life, and considering he’s renting as opposed to paying a mortgage where he gains equity, it's a long term catastrophe. $2,500 a month to pay someone else's mortgage. To pay for someone else to gain equity in the home you live in.
Say our friend lives there for 10 years at $2500/month. That's $300k and he walks away at the end of the 10 years with 0% equity.
Immigrants from just two generations ago would live 10 family members to a house to own it clean and clear. People sharing rooms, beds, just for a chance to be here in America and make the equation work. This man was renting an apartment for more than 80% of his assumable annual income (on high side).
He must feel soo incredibly trapped. So squeezed. How many of us feel that way?
And we’ve allowed it to happen. Maybe through greater expectations and lifestyle creep. Maybe natural envy amongst us. Or maybe just availability of vast amounts of credit. The banks, the mortgage companies, the retailers, and the automotive companies take, what to us seems like little amounts of money per month. What we aren't being taught in school, and are failing to learn ourselves and pass to our future generations, is that those small amounts add up to MASSIVE amounts in a lifetime. They add up to generational family wealth over multiple generations.
While Warren Buffett stands a shining example of the opportunities of compounding investment interest and its magical ways, right in front of our faces, the greater population sails speedily in the polar opposite direction.
Now, I am not completely shunning debt. There are techniques of wealth creation through debt and leveraging, wielded by the most financially literate amongst us, but there are also vast debt traps in society set for the financially illiterate. And it seems that more and more of our people are swimming into the net.
Average household debt is at $103,358 which is up 11% from 2020.
Average household income is $74,580 which is down 2.3% from 2021.
And these statistics are amidst a great transfer of free funds from the U.S. government to its citizens via COVID relief payments..... Apparently most of us didn't use it to pay down debt.
The story of our lifestyle creep continues to run rampant across large swaths of the population. Can we just keep borrowing our way to “perceived better lifestyle” while passing our opportunity for future wealth over to the banks?
“You’ll own nothing and be happy” -World Economic Forum prediction for 2030
And you'll still pay the bank interest % on everything. Surrendering more and more wealth and ownership to corporations and the top % of wealth holders.
Has the middle class really shrunk, or has it shrunk itself?
~ Financial literacy has become a passion of mine as I read more and more about the lack thereof in our population. With a little self discipline, and a few lessons in budgeting and compound math, the ship can be turned around. The chips can start to stack on your side of the table. And equity can grow. In your home, your life... more assets, less liabilities.
Can you take the leap from caring about the appearance of what you have to caring about what you actually have?
I heard a quote the other day that being rich is spending $1 million where being wealthy is savings $1 million with no intention of spending it.
Do you want to be a part of the richest nation? Or the wealthiest nation?
My whole perception changed when I realized that the nicest cars around me held the most indebted people inside them, and it was likely that the wealthiest were in the unassuming ones. If we can change that societal perception, maybe we can change our compass. If we can change the direction of our compass, we can change the outcome of our future, and more importantly, our children’s futures.
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