Average American loves new cars, hates common sense

December 28th, 2011

Americans love their cars. Buying a new car is an exiting event for most of us, and is often accompanied by copious amounts of internet research, multiple visits to dealer showrooms, and careful budget considerations to determine what we can comfortably afford. Oh wait — scratch that last one.

It turns out that most Americans are actually completely incapable of making sane decisions when it comes to money. The car-buying mentality in America appears to be a two-step process when it comes to finances: first, figure out the absolute maximum that you can afford to spend every month on a car payment. Then, find the best car that you can possibly buy, using that entire monthly budget. This is why car salespeople can commonly get away with simplifying a new car transaction down into the all-mighty monthly payment figure, glossing over minor details such as purchase price, fees, and loan terms. After all, those figures aren’t important if you can swing the monthly payment, right?

But what if new vehicle discussions didn’t revolve around whether or not your monthly budget could accommodate a $289 car payment? What if car salespeople put purchase prices into real-world terms that even the most math-challenged person could understand? What if a car salesperson asked you if you would be willing to hand over every single penny you earned for the next 14 months, in exchange for that car you’re eyeing? Because that is exactly what the typical American is doing.

According to truecar.com, the average purchase price of a new car in America reached $30,317 last month. That is quite a bit of cash, especially considering that highly-rated vehicles such as the Hyundai Elantra and Ford Focus are available for about half that much. But that figure is downright shocking when you consider that the median individual annual income for working Americans is only slightly higher, at $34,058 (source: U.S. Census Bureau). Is the typical American really spending almost a year’s worth of wages when buying a new car?

It’s actually worse than that once you factor in realities like income tax, sales tax, and the fact that the overwhelming majority of people are not paying cash for these vehicles (and thus will tack on several thousand dollars in finance fees). That median income of $34,058 is only $31,244 after Uncle Sam takes his cut (assuming 25% tax bracket and the standard deduction). That leaves the typical American worker with $601 of real spending money per week.

The average new car purchase price balloons to $36,043 after factoring in sales tax (5%) and finance fees on a 5-year loan at a reasonable 5% interest rate. Which means it would take the typical American worker 60 weeks to pay for their new vehicle if every single penny from every single paycheck was devoted to it. And this completely ignores operating and maintenance costs, of course.

Does this seem idiotic to anyone else?

Categories: Financial Idiocy Tags: ,
  1. Sharon
    December 29th, 2011 at 13:41 | #1

    It does indeed. Word.

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