The day after Thanksgiving, we took the two teenagers in our life to the Turkey Trot which is held each year at the Daytona Speedway on the weekend after Thanksgiving. It is a combination swap meet and car show with lots of people walking around appreciating the refurbished cars, trucks and other assorted vehicles. Other people were wheeling and dealing on spare parts and every imaginable accessory related to cars, trucks, boats and motorcycles.
The boys were having a great time talking about which truck/car they liked the most, which paint color was best and snapping pictures of their favorite vehicles. We were having a good time pointing out the types of cars that our parents had when we were growing up and what we drove when we were first married (ancient history to the 15 and 16-year-olds).
One of the trucks on display was a 1934 Ford pickup. It did not impress the boys. The only way to describe the color is to call it rust (like in real rust, not rust colored). The hood was halfway gone, the seats were threadbare and there were tools all over the inside. I do not think this truck had been washed in at least 50 years and it had probably never seen a spot of car polish.
While the truck was old and falling apart, the owner, however, was amazing. He explained that when he was in high school, his parents encouraged him to save money. And to give him some incentive, they matched what he saved each month. When he graduated from high school he had enough money in the bank to pay cash for a reliable used truck. The matching savings was accompanied by encouragement from his parents on the benefits of driving a vehicle with no car payments.
It was his pride and joy as a teenager and as the years passed, he never saw a need to replace the truck since it remained in relatively good running condition. If it ever needed to be fixed the engine was simple enough that he could fix it himself, even if it was something as complicated as completely removing the engine from the truck.
Then the owner hit our hot button as he started to talk to the boys about the benefits of driving a debt free car for 50 years (from high school to retirement). He explained that he was able to save, enjoy life, travel, and retire based on not making a car payment during his entire adult life.
So what is the impact of driving debt free cars? Today, the average car payment is about $375/month. If a 21-year old drives a debt free car and saves the $375 monthly car payment, by the time they are 65, they will have saved over $1.3Million!! ($375 per month at 7% for 44 years). That got the boys’ attention!
The only reason to own a car is for safe reliable transportation. Yet how many car commercials focus on those aspects of owning a car? Instead, they focus on how sexy the owners are, how luxurious the car is, how other people will envy you if you choose the car they are selling. How wonderful the sound system is. How fast the car goes. In short, most of the car commercials don’t even acknowledge safe and reliable transportation as a reason to buy what they are selling.
Yet, as our new friend shared with the boys on Friday, spending more than you need to on a vehicle can do serious damage to your financial health. And driving a debt free car does amazing things to your financial goals.
After home mortgages, car loans are the largest debts most people have. Unlike a home, which usually appreciates in value, the moment you drive a car off the lot it depreciates in value. It’s worth less than you paid for it by the time you hit the first intersection. The depreciation is especially dangerous because most people never get out of car debt. Just when they get to the point of paying off a car, they trade it in and purchase a newer one with credit.
Everybody likes the new car small – but it comes at a high cost. A new car loses 40% of its value in the first year, and 60% of its value is gone by year four. In other words, a new $28,000 car will lose about $17,000 of value the first four years you own it.
You could get the same results by tossing a $100 bill out the car window once a week for over 3 years! Car debt is one of the biggest roadblocks for people on their journey to financial independence.
In 1 John 2:15 we read “Do not love the world, nor the things in the world.” Often times loving the things of this world influences our buying habits too much. Looking at the shiny new cars that are so enticing to a teenager is certainly an example of loving the things of this world.
We may not be able to match monthly savings for our teens, and many of them will not be able to buy a car with cash, but teaching them about the money wasted in paying interest and the money gained by saving is a valuable lesson.
At a minimum, teens should be taught to always buy a used car, never buy a new car. Besides being budget-friendly, today’s vehicles are designed to run for many more miles than the models of years past, although I can’t imagine many cars would last as long as our friend’s 1934 truck. But even driving a car for 10-15 years after it’s paid off is a huge financial benefit if you save the money that would go toward the car payment.
Teach your teens 3 steps to get out of never ending car payments:
- Decide to keep the car as long as it is drivable after the loan is paid off.
- After the final payment, keep making the same payment to yourself. Put the money into an account that you will use to buy your next car.
- When you are ready to replace your car, the trade-in, plus your years of savings should be sufficient to buy a good used car without a loan.
While the boys may have enjoyed looking at the hot rods and all the custom vehicles, we certainly enjoyed the impromptu lecture on car loans. After all, the real reason for owning a car is to get you from point A to point B safely and reliably!