Open Mike: It Costs More to be Poor

This fact broke through my thick skull slowly, and late. Mainly because of my own low aptitude for, and devil-may-care attitude toward, arithmetic.

Not long after I got out of college, I bought a new car. So, at the same time, did my then-girlfriend. She had a modest trust fund; I didn't. Because she got an extra $25k or so every year out of her trust fund, and was more frugal than me anyway, she had a lot of cash in the bank. I didn't. Unlike her, however, I liked cars, and knew a little bit about them. I was going to "help" her buy her car.

So off we went to buy our cars. The car I wanted cost $15,000 (this was back in the 1980s) and the car she thought she'd get cost $13,000. You know...I was older, I was the one who liked cars, etc., so it made sense that I'd be the one buying a somewhat nicer one.

First we went off to her dealer. The car my girlfriend wanted cost more like $14,000 once it was loaded up with some of the features she needed. It turned out that the next model up came with all the features she wanted (and more) as standard equipment. That model, normally more, was marked down to only $16,000 as a result of some sort of promotion the manufacturer was running at the time. (I'm rounding all these numbers off, of course). The salesman (no doubt after sizing her up as someone who was going to make a hard-boiled financial decision based on dollars and cents, rather than sentiment, emotion, and self-indulgence), pointed out that the better car would actually cost less than the cheaper one if she were going to keep it for four years or more, because better cars retain more of their value for longer—that is, they're worth more after you're done with them. It's called "residual value." So she eventually decided to buy the more expensive car, the one with the sticker price of $16,000.

Then the salesman asked how she was going to pay for it.

"With a check," she said. The salesman looked startled (she was quite young). "Assuming you can move a little on the price."

Well, move he could, and move he did. She ended up buying a "demo" that had all of 163 miles on it, for $15,000, give or take. Plus they didn't make her pay for the alloy wheels and the extra speakers it had, because she hadn’t wanted them and said she wouldn’t pay for them.

Okay. So, next, me.

We went to my car dealer and I looked at the $15,000 car I wanted. I could only put $1,000 down on the car, so I would have had to finance the remaining $14,000. I had already looked at my budget and decided what I could spend on a monthly payment. The salesman thought he could squeeze me in under my highest feasible monthly payment number if he could get me approved by the best finance company at the best rate.

I was a photographer at the time. Like most photographers, I tended to juggle money: clients had long billing cycles, and work went through dry times and flush times. Sometimes I paid my bills on time; other times I paid them early; and other times I paid them late. I thought "early" and "late" more or less balanced out.

Have I mentioned I knew very little about money and finance at the time? (Well, still, but let's stick to the point.) For the record, people who lend you money generally don't care about early. They do care about late. They care about that quite a lot, it turns out.

The salesman came back looking crestfallen. My credit, he said, was poor. Not only could I not get the best rate, but the best company wouldn't even loan me any money at all! I had to go with another company. The second company had standards that were more lax, but they also charged more.

That put the $15,000 car out of reach. I had to settle for the next car down—the economy model in the lineup—which cost $12,000. And the $12,000 car loan I needed (subtracting the down payment) would end up costing me another $3,000. Over time, of course; but still, that was the cost of the loan.

So are you getting what happened here? I bought a $12,000 car and a loan that cost $3,000. Both my girlfriend and I paid the same exact amount for our cars—$15,000. But because she could pay cash, she had leverage with her dealer. He cut her an especially good deal, and she basically got a bigger, nicer (and, to my annoyance, faster) car that normally sold for $17,000. A nice discount.

I, on the other hand, because I didn't have cash, and had poor credit, and needed a loan, didn’t have much leverage. For my 15 large, I had to settle for a smaller, cheaper, slower car worth only $13,000. And no discount.

Not only that, but then you have to factor in our respective residual values. By the time I'd paid my car off—five years—it was only worth about $5,000. At the end of the same amount of time, my girlfriend's car was worth nearly twice that much—almost $10,000.

So for the same actual cost, my girlfriend got to drive around in a much nicer car for five years, and ended up five grand ahead of me in the value of her owned asset. At the end of five years, she had enough residual value left in her car that it was painless for her to trade hers in on a new model. I didn't. I kept driving the old one. At least I could put one of those bumper stickers on the back that said something like "At least it's paid for."

Kept that car for nine years, it turned out, until one summer when it whacked me with large repair bills in each of two successive months and nearly bankrupted me. I sold it to a wholesaler for $500 in hundred dollar bills. Which went into the down payment for my next economy car / expensive car loan package.

I'm still in touch (occasionally) with that former girlfriend...but I don't have the heart to ask her what she's driving these days. (She's now a doctor in San Francisco.)

Like I always say, it costs more to be poor.

Mike

"Open Mike" is a series of off-topic musings that appear often, but not always, on Sundays on TOP.

CORRECTION: I had to go research, and modify, some of the numbers originally used in this post, because I wasn't remembering them correctly and several readers took me to task for it. I do remember the relationships between the numbers correctly, however, I'm reasonably certain of that. Because therein lies the story, and stories are what I remember.... —Mike

Original contents copyright 2013 by Michael C. Johnston and/or the bylined author. All Rights Reserved. Links in this post may be to our affiliates; sales through affiliate links may benefit this site.

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(To see all the comments, click on the "Comments" link below.)
Featured Comments from:

John F. Opie: "The Brits have a saying: I'm too poor to buy cheap. Had to do with shoes (i.e., buying one pair of good shoes was less expensive in the long run than a series of significantly less expensive shoes) but it's the same principle.

"The real question is why you didn't get any financial education: I know I didn't. My folks taught me, though, that if you can't pay for it cash, then you can't afford it. Depression-era generation. Sure, the banks are more than happy to earn lots and lots of money off you: the question is why you want to let them do it."

Nikojorj: "As we say in French: on ne prête qu'aux riches (only riches get a loan). Indeed."

Steve D: "I play math games with my ten-year-old daughter (who actually enjoys math puzzles and games) about concepts like 'present value' of money. What costs more when figuring in different types of interest and 'opportunity cost' of spending. Stuff like, if Jane and John both have ten dollars and they both want blah blah.... It's too late for me to do much with the idiotic mistakes I've made over the decades but by god I'll be darned if she'll go into young adulthood ignorant about such things. Gluttony, lust and desire may get her the same as it did me but she won't have the excuse of ignorance."

Craig: "Actually, I think the point here is not that 'it costs more to be poor,' but that it costs more to live beyond your means—not quite the same thing."

Mike replies: The story above came from a never-published book manuscript, which included five or six different concepts and stories to illustrate each. The principle, which holds true across a broad spectrum of cases, is that if you have bad credit you will pay more for necessary loans, and if you need loans for large purchases you will end up paying more than if you don't—and generally get lower-quality goods into the bargain. All this story really illustrates is that if you can pay for something straight up you'll pay less for it than if you need to take out a loan to buy it, which I believe is pretty close to indisputable—? But I'm open to being corrected if I'm wrong.

JG: "If it's any consolation, it's my experience that paying cash for a car does not get one much of a price break these days. This is because the dealer (and its salespersons) factor the spiffs they will receive for arranging loans for their customers into deal. Deny them their spiff by paying with a check and their bottom-line price may well go up, not down! I've even had a salesman refuse to sell me a car for cash and insist I let him arrange a loan for me, which he assured me I could pay off without penalty after the first month. Needless to say, I passed on his 'deal,' which puzzled him greatly...."

Slobodan: "There is a conceptual error in your calculation. You take into account interest on your car, but you do not take into account so-called opportunity cost of your girlfriend's cash payment. You know, she would be earning interest on that cash, had she kept it invested in that fund she had. It is generally foolish to pay cash if your good credit rating allows you to get a rate well under a commonly expected rate of return on investment (i.e., 8–10% per year, long term). Perhaps by getting a good cash discount and other promotions she ended up better off anyway, but it is important to take the opportunity cost into account for apples to apples comparison. But, other than that, I agree with the gist of your post."

Comments

[Jeff]

Two weeks ago, because of Eolake Stobblehouse, you were "getting richer and richer" by the minute. Seems you're beginning to think more like a rich guy, too. You know, you can now buy a Leica S2 for half the initial retail price, with full warranty. :)

[Ken]

Not that I would have done it any differently than what you did, but now that I am a bit older, I realize that you (esp. when you were young) could have postponed your car purchase a couple of years and saved up for a bigger down payment. Then you might have gotten a better deal. If you were then living in Washington DC, which has a decent public transportation system, it would have even been possible (and not just theoretically possible) to delay your purchase.

But like I said, I would have done (and actually did) the same thing you did.

[David Maxwell]

So what were the respective cars?

[Marty]

Thank you, Mike, for confirming what I'd always believed to be true.

[Geoff Wittig]

Mike, it's not just being financially unsophisticated or missing opportunities for savings that make it so expensive to be poor. Our economy here in the U.S. actively and aggressively discriminates against the poor, exacting all kinds of 'poverty taxes' at every level. Affluent folks won't put up with this kind of abuse, and can generally find advocates in government to prevent it. The poor have no such recourse.

For example: I spent my first two years in medical school living in the East Flatbush neighborhood of Brooklyn NY. Shopping for groceries meant one of two things: buying grossly overpriced canned goods and dusty non-perishables from one of the local 'bodegas', or walking quite literally a mile either east or south to the closest actual grocery store. You had to walk because carrying multiple sacks of groceries onto a densely packed city bus was not feasible. A mile walk, in one of the most densely populated parts of America, just to reach a grocery store. At the grocery store, produce was frequently wilted and rotting already when placed on the shelf. Milk was almost invariably a single day from out-dating, which forced you to buy a smaller (and therefore more expensive per ounce) container so it wouldn't go sour before you could drink it. And prices were much, *much* higher than at groceries in affluent suburban neighborhoods. If you compare a suburban supermarket in an upscale community with a grocery store in a poor urban or rural community, you'd think they're in different countries. In a real sense, they are.

The closest bank required a bus ride. But every major street had a 'check cashing' storefront which would cash your paycheck for a steep processing fee. Residents of poor neighborhoods frequently pay exorbitant fees for limited access to basic financial services that affluent folks often get for free.

I could go on.

[Yes, you could. The story about the two cars is part of a book I once tried to write for teenagers about wealth. The chapter it came from was called "It Costs More to be Poor." There was another chapter called "Life is a Regressive Expense." It contained a lot of the stories like yours above. --Mike]

[Stan B.]

And it costs less to invest in education rather than imprisonment, less to have universal health care than the current financial gouging or inevitable long term health consequences, and a lot less to have near full employment rather than the unnecessary multi-hundred billion dollar war every other decade or so.

Ya get a lot more in return for every dollar spent choosing the more prudent fiscal choice. But who's listening, and who cares...

[Craig]

Actually, I think the point here is not that "it costs more to be poor", but that it costs more to live beyond your means -- not quite the same thing.

[Jim Bullard]

You should read "Living Poor With Style" by Ernest Callenbach.

[David Dyer-Bennet]

Yikes, an $18k car in the 1980s? You're living way higher than I've ever contemplated! My first car, in 1977, brand new from the dealer, was $4k.

[What was that, a Civic or a Beetle? I believe the cheapest new car on sale in the USA at the time my story took place cost just under $10k. Might have been just under $9k (I don't have a good memory for numbers.) But it was an atrocious vehicle that held its value like a leaky bucket, and wasn't very popular (didn't compete very well against used cars). --Mike]

[Mike Plews]

This post made me jump into the time machine and go back to the early 1980's for my version of your case full of Canadian Leica's story.
I had just got a decent staff job as a news photographer and wanted to go back to my first car which was a Triumph TR3, then long gone.
There was a local exotic car broker and he had a nice TR. As it turns out he had it at $5000 which was beyond what I could borrow for a twenty year old car so I stayed with my regular ride.
While wandering through his showroom I spotted two cars a local airline agent had brought back with him after a tour of duty in Italy. They were a Ferrari 275GTB (not a four cam) and a Lambo Miura S. Your choice at $19,500 each.
That was almost exactly what I was making for a year at the time so no go there either.
Today either of these cars would trade for ten time what I make now, sigh...
And as for the car I kept? It was a 69 Camero sport coupe. I ended up selling it for a couple hundred bucks when I needed more reliable transport. Back then it was just a used Chevy and I was glad to have the cash.
Not long after that I friend who was a stock broker told me Warren Buffet was going on the NYSE at $1800 a share and I really needed to get on board. I told her that nobody in their right mind pays that kind of money for one share of stock.
Some of us are just destined to die broke. Happy but broke.

[Doug C]

Wow, like David Dyer-Bennet $18k sounds like huge money for a car in the early 1980s. I had a VW Jetta (neat enough little car though not as nice as the BMW I assume your girlfriend bought, but better in snow) and a Triumph, well actually a Vignale Italia 2000, a 1942 Chevrolet panel truck and something else, can't recall what, all for less than $18k.
OK, I sold the Italia for chump change (worth about $95k now) but what's in my garage now makes me not regret that error.

[It wasn't the early '80s, it was the late '80s, and although it's always possible I have the actual numbers not quite right (I have a bad memory for numbers), the car I bought was the entry-level Japanese sedan from a mainstream maker. --Mike]

[A. Dias]

It's not that it costs more to the poor. It is that it costs more to spend beyond one's means. In 1983 I paid about $9k for a brand new, very decent, fun-to-drive, 5-speed Nissan Stanza (with a small car loan which I paid off in 3 years). That car was used to commute to work and often as a family car. I kept that car 13 years. Could I have spent $18k on a car? Perhaps, but I would never do it, as my goal was to be financially conservative, working hard, to climb the economic ladder... For the most part, being poor in this country is strictly in one's mind; a state of mind that the welfare state perpetuates ad infinitum.

[That last sentence is the most absurd thing I've ever posted on this site, but it's your opinion, I'll let it pass. And I suppose I opened the door by allowing Geoff's comment.

You need to go meet some homeless people, my friend. There are an awful lot of them out there living in their own states of mind.

Now, no more politics. --Mike]

[Hugh]

I worked in North Carolina for two years 1985-1987.

Bought a mint condition 1974 Chevy Impala for $1400 and sold it for $400 after 2 years, and a rusty 1966 Mustang convertible for $2,000 and sold it for $2,000 after 2 years.

Total cost of repairs and servicing for 2 cars for 2 years was less than $1,000.

I had a friend there who had a 1966 Mustang convertible with 400,000 miles on the clock (in 1985). He'd owned it from new.

You guys made good cars up to about 1974. All fell apart after the oil crisis.

Only bought one new car in my life - and that was a Landrover with a 20 year life expectancy.

[Dogman]

No credit history is as bad as a bad credit history. When I bought my first car, I had no credit history but it was financed through a dealership owned by a friend of the family. I kept that car for way too long because by the time I needed to buy another car I had been debt-free for years. It was great not to owe anyone but it was a shock when the auto dealership had trouble getting financing. I ended up paying a rate just shy of usurious for the loan.

Mike--I bought two vehicles in the 1980s--both Toyota trucks. The first one was a basic model and cost a little over $7000, the second was a deluxe extended cab 4-wheel drive model for about $15,000. I don't have the same taste as you do when it comes to vehicles but I recall most of my friends were buying pretty standard cars for less than $10,000 in this time period. Maybe we were just getting good deals.

My dream car from high school days was a Jaguar XK-E but it sold for about $5200 in 1966 and this was considered unattainable. In 1977, I bought a new Chevrolet Nova for just over $5200.

[Tom Swoboda]

Mike, it's a myth that you can get the lowest price on a car by telling the dealer you will pay cash. The dealers make too much money on the financing kickbacks to give up profit on a low ball cash deal. Having poor credit also makes it easier for the dealer to make money because the higher finance charges paid by poor credit customers means bigger kickbacks to the dealer and also allows them to give less of a discount on the car because they think they have you by the family jewels.

You are better off letting them think you are going to finance the car through them before finalizing the price and then changing your mind and paying cash. Also never let the dealer use monthly payments as a negotiating technique. Walk out if they won't negotiate the actual price of the vehicle.

[Jack]

I wish Westerners would not first equate being poor with material things, versus relationships, emotional or spiritual status.

May I assume were rich in your relationships? You had an accomplished, intelligent girlfriend.

But if you are poor in relationships it will cost you more, so your title works here too.

[Paul Van]

http://wiki.lspace.org/mediawiki/index.php/Sam_Vimes_Theory_of_Economic_Injustice

[Sarge]

Mike, what I'm saying below is economics, not politics.

You are poor when most if not all of your income is spent on food, rent and other basic needs. Spending on cars* is discretionary; so you're not poor when you can afford to.

One ceases being poor if he or she is able to save, or when discretionary outgo exceeds one's spending on the basics.

Which is why I feel really rich when I buy a new camera or lens worth several months' worth of groceries.

*To one who lives in the country in a continent, or in a city sans mass transit, spending on self-transport may be a basic need. Alternatively, not being able to venture outside one's (inner-city) neighborhood for life, is an indicator of (urban) poverty (of the spirit, if not of the flesh).

In emerging Indonesia (an erstwhile OPEC member) or socialist Venezuela, lifting government subsidies on fuel is likely as not to provoke "gasoline riots" among those who feel entitled to them.

[David Dyer-Bennet]

Yeah, late 80s vs. late 70s is a considerable difference, there was pretty hasty inflation then.

My $4k 1977 car was a VW Rabbit; lovely car, I sold it to a friend and it ran well into the late 80s. (I've owned 3 VW rabbits, including...)

I bought a car in 1986, too -- a VW GTI. That cost me just over $12k. $18k still sounds like living pretty high.

[Rick D]

Cheers Mike,

You've really touched on something that (IMHO) resonates through both our low- and middle-income demographics, which is how hard it is to gain a financial toehold today.

On reflection, my first couple of car loan APRs were in the teens because interest rates were VERY HIGH in that era (and passbook savings accounts earned six, seven percent) but I'm continually shocked at the usurious rates routinely charged by rent-to-own, payday loan and similar financial institutions serving the working class. Heck, even my credit cards, should I carry a balance, charge well into the double-digits and those banks have access to nearly interest-free money. Nice delta.

Recent article in the local dead-tree paper cites 44,000 metro area households who don't have a bank account of any kind and instead, rely on payday loan and check-cashing companies. These outfits get exemptions from state usury laws and charge mind-boggling rates-ranging into the hundred-plus percent APR.

We can and should do better, but who's demanding it?

[Jim]

And I still drive my 1982 pickup, bought used. Between the cost of the truck and all I have put into it over the past 20 years I still have not paid over $6200 total for it, excluding fuel and oil.

[mark]

The poor man always pays twice.

[Bernd Reinhardt]

I know people like to complain about how expensive Leica is, and I tend to agree that it is getting outrageous. However, my friend and I got the bug when the M8 came out that we needed a comprehensive set of the best lenses Leica had to offer between 28mm and 75mm, and a second 50, the then current f1 Noctilux. We spend a good amount of money by 2006 standards.

Due to health reasons my friend decided to sell his Leica gear and after paying the commission to the dealer who helped sell the five lenses, he ended up with $14,000 in his pocket.

Of course there's always a problem with equity: it's like chips on a poker table. They mean nothing until you cash them in.

[Lynn]

Mike, if you make your first major purchase on credit and once its fully paid off buy your next big item on credit and then repeat this cycle over and over (which many low income people do, rather than save and pay cash from the start), that's no different to never, ever paying off the first item - you will pay interest on it for the rest of your life. Would you buy that $15,000 car if you knew it would end up costing you $75,000?

Two useful things to know are how to construct a budget (and live within it), and knowing how many hours you must work for each dollar you spend - a sobering calculation to counter wallet temptations.

Start by working out your weekly or monthly net pay after tax. Then deduct all the costs you incur earning that money - transport, work clothes, memberships, and the expenses the tax office doesn't compensate you for. That is your real net amount. Then to the nominal work hours add the extra hours you spend unpaid earning your income - e.g. commute time, unpaid overtime. Use this information to work out your real hourly rate, and (even more interesting) how many hours you have to work (including all those unpaid hours) to earn each $100 you spend.

Let's say your net income is $30,000 after tax and expenses, and you put in 40 hours a week at work plus another 20 in unpaid work time plus commuting. You take a month's holiday a calendar year so in a year you're working 48 weeks at 60 hours actual - that's 2,880 hours to get that $30,000 in your bank account. Each $100 cost you 2,880/300 = 9.6 hours. So that bargain, must-have camera discounted to just $1,500 will cost you 15x9.6 = 144 hours or two and a half weeks of work - but only if all of your take home pay is available for discretionary spending.

Now for the bad news. In the real world you have to pay mortgage or rent, food, and health costs out of that $30,000 before you make that calculation. So the $30,000 becomes something like $5,000 that's actually left over for discretionary spending after those expenses. You're actually working 2,880 hours to get that $5,000 in spending money each year, or $1.74 per hour. Each $100 of real, in-the-hand discretionary spending money requires you to work 2,880/500 = 57.6 hours of work, about the same number of hours you put in each week. That $1,500 camera on sale represents 15 weeks work. Do you still think it's a bargain?

[Ed]

My prof. Dr. Paul Denon Mier had a verry special take on cars. He hated the guts out of them anyway so he spend no more then 500 euro (1000 guilders back in late 80th) on a car.

He had a small independent garage take care of it and if a repair came up that outcost the price of a "new" car, he had it wrecked and bought a new one. Oh, his car was always open, keys in the dashboard cabinet cause he figured cartheves wouldn't find it worth stealing anyway and anyone at the lab with a driving licence could use it. During my stay at his lab he had to change cars since the Renault 16 developed enige trouble (after he owned and drove it for 7 years), he then forcked out a whopping 1200 guilders for a Ford Taunus 6 cilinder.

Usually he drove from his home to the university and back (5 km commute) and once in a year he grabbed the wife, the kids and everything and drove to Sweden and back.

Now I guess that can't be topped.

Greets, Ed.

[D. Hufford.]

"I wish Westerners would not first equate being poor with material things..."

I was not aware that that was a Western thing as it seems Easterners in first world advanced economies tend to do the same darned thing. At least most folks I know in Japan do unless they are one of the rarer than rare folks actually practicing Zen in some monastery somewhere. (You'll note the temples head priests often drive Mercedes.)

I grew up in rural Appalachia---West Virginia. Folks, including many of my relatives and neighbors, had good kin, were very religious with strong spiritual lives, and lived in a very natural environment (if it hadn't been damaged/destroyed by big coal), but were still materially poor and they knew it. Hints were buying stuff for your kids that were needed in school, buying necessities for your home, buying the food that you could not raise, paying doctor bills, dentist bills and such. T'was not a state of mind nor a failure to appreciate the good in life. The is nothing glamourous, virtuous, or romantic about poverty.

[Mark]

First, I enjoyed reading this column.

Second, in 1979 at 22 yrs old, I embarked upon what would be 32 years as a NYS govt employee. My salary was $24,500 to start. My then new wife thought I was rich. She only made $15k. Until she found out I was living well beyond my means. (And I was, and am, a court reporter who made considerable extra dough selling transcripts).

Between us we couldn't afford a car and toiled in city traffic on a motorcycle. I used to borrow a friend's 1972 Pontiac Astre, similar to a Vega. Two-door, faded yellow. Until one day he offered to sell it to me for the princely sum of $800. I loved that car. Drove it till 1986 when my son was born. And my brother in law then drove it for another five years.

Two weeks ago I bought a 2003 Lexus SC 430 from a buddy. He was original owner. He paid north of $60k for it. I paid him $17k. It's mint. My first convertible.

[Sean]

Being poor is not a state of mind, it just takes a really strong one to be able to endure it. A mind poor in empathy will make statements such as one I read above.

Frankly, it's a bit rich & poor at the same time

[Tom Kwas]

I'm with DD-Bennett, I bought a brand new 1987 Toyota Tercel hatchback, and it was less than 10K, ran forever, and traded it in with mucho value for a 1993 Tercel, new again...Triumph sports cars in the 70's taught me there's nothing better to buy than the cheapest Toyota or Honda; you must have allocated far more of your income to buying an automobile than I did; after owning the Triumphs, I was never motivated by anything but quality build, low repair, and cheapest price to stay off the bus, hence Toyotas....

To J.G.'s and Tom Swaboda's point's: they are correct. Today, a dealer will NOT give you a deal to buy a car cash, they make too much money on points and give backs if they finance, and in fact, I've known of someone that negotiated a great car deal telling the dealer that they were going to put 20% down and finance, and then when the agreed upon price was reached, he said he would pay cash and the dealer pulled the deal off the table.

Good to know in the topsy-turvey world of car buying, that all dealers buy their new cars on revolving credit, and the longer the car is on the lot, the higher their own financing charges are per vehicle, so theoretically you should be able to get your best deal on a spanking new model as soon as they off-load it from the truck, but in reality, early year model purchasers generally pay the most because they are most motivated by their own need to be the first on the block with the vehicle. Amazingly, those end of year give-away prices to get rid of old stock? The dealer has so much into the car they practically make nothing...

The key to motivating yourself around town? Live in an area that has great mass transportation, and own a car for going out or grocery shopping, it'll last forever. I only put 3K miles a year on my Toyotas when I lived in D.C., which based on the usual mileage totals I would get, meant I could easily own the car with no repairs for 20+ years!

[Tom Kwas]

To Wittig's point,

The lower socio-economic communities suffer terribly from lack of options in banking and purchasing. While I'm not condoning this practice, after years of being in the retail creative services management business, I know generally institutions make each and every outlet support their own weight. Poor people pay the most for food because they live in the inner city where there is no place for competing stores to build cheaply, and even if they do, the "shortage rate" (theft to you) is so high, that no store would be allowed to stay in business (stores start getting antsy if their shortage goes over 2%, I've seen inner city store, that were eventually closed down, at 23%!).

In addition, banks claim they don't make money if you have less than 5K in total in all your accounts, and will charge you to actually keep your money and write checks, if you do have less. My poor artist sister has been up against this for years, and now banks at a credit union, which is at least "no-charge" for checking and holding your money. Again, look at the stats, the poor bounce checks, over-draft their accounts and have a lot of fraud problems at a much higher rate than anyone else; possibly due to personal education as well as "short" money.

No one starts a business to lose money or multiply their problems. You will see a time in our future where the poor won't have food stores or banks in their neighborhoods at all, you can't make a company do it.

[Arthur]

Maybe cars are not very important to people who live in metro areas with decent mass transit either in the U.S.or abroad, but millions of Americans live in rural parts of the country. A reliable automobile is an absolute necessity for those people if they hope to become or stay gainfully employed.

[Paul Richardson]

To my everlasting shame, I briefly sold cars and my experience was that dealerships didn't care if you paid cash, and in fact would sneer at customers who thought it was a negotiating tool. The reason? They get a cut on the financing, which ends up being big bucks for them.
My .02.

[Crabby Umbo]

For another $0.02, I used to buy bottom of the line, Japanese cars, like Toyota or Honda, and finance them entirely after negotiating my best deal. At 4% APR, or so, it was like free money, but also it was a wonderful way to build credit, something very valuable in America. If your going to build a fabulous credit record and history, you might as well do it for 4%!

BUT, compared to my un-savvy friends, my loans never went over 3 years, and I always kept the car for 10 years or better. Most Americans are morons when it comes to car maintenance, and never do the usual stuff they need to to keep cars running correctly, they just wait until the thing breaks.

While used cars are a far better deal, I just don't want a used car with 50K miles on it that's been taken care of by an "american", hence I'd always rather buy the cheapest Toyota and take care of it the "right" way, than a used upper end model a few yeas older with more luxury. The best "luxury" in any vehicle is never breaking down, and having trouble due to poor maintenance, and never leaving you stranded...

[B Grace]

I think the interesting point for me was back in the 1980s when I researched residual values for the different brands of cars and found Brands X and Y consistently held their value better than all other brands. I'm referring to brands of cars routinely appearing in magazine comparison articles for similar models. It's all subjective of course but after buying new cars every six years or so for both my wife and myself I figure we've saved close to $30k US over the past 25 years due just to the residual values. And those cars we picked were both nice to drive and very reliable as well which is just icing on the cake.

Total cost of ownership values for automobiles are certainly boring numbers to consider but they're an important part of my personal Get-Rich-Slow Scheme.

[And you're not going to tell us which those two brands of cars are? Is it a secret? --Mike]