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Is it insane to buy a new car?
Welcome to “Not Pretty, Not Rich,” a newsletter about money and the economy.
It’s Friday, February 19, 2021, and here’s this week’s rundown:
In the news: Biden’s $1.9T stimulus plan
News: Weather and your wallet
Idea: A maximum wage
Feature: Is it insane to buy a new car?
Numbers and links
Where we’re at with Biden’s $1.9T stimulus plan
The Biden administration is continuing to work on passing another big stimulus bill.
What’s happening: The Biden administration looks primed to pass another big stimulus bill, this one totaling nearly $2 trillion. Though the details seem to be changing hourly — in terms of what the bill includes, who supports it, and what it will ultimately mean for all of us — it’s probably a safe bet that it will be signed into law at some point in the near future.
In a month or so, unemployment benefits will start running out for millions of workers, so time is a factor. In terms of what this bill could include (per CNN):
Stimulus checks: $1,400 per person, and up to $5,600 per family (depending on household income).
Unemployment benefits: An extension of the current federal per-week boost until late August. Currently, it’s $300 per week. This bill could raise it to $400 per week.
Additional funding: More money for nutrition assistance programs, housing aid, education, and child care programs, states, and public health and vaccine programs.
$15 minimum wage: It’s in the bill now, but it’s probably going to be stripped out as not all Democratic Senators are on board with it (Senate Democrats can’t lose a single vote). That’s probably good — a radical change like doubling the minimum wage probably shouldn’t be tacked onto an emergency bill. That’s my take, anyway.
The takeaway: More stimulus is on the way, and it’s really more a matter of “when” than a matter of “if.” The economy’s a wreck, even if it doesn’t necessarily feel like it for a lot of people, and a lot of these provisions are much-needed.
Weather and your wallet
Texas turns into a snow globe, and it’s a reminder that the weather has serious costs.
What’s happening: This week, Texas and other parts of the country that are unused to significant snowfall were hit with an avalanche. It sent temperatures plummeting, caused power shortages and outages, and general chaos. It even caused a “snownado” — a hybrid weather monster that, previously, could only be dredged up by fever dreams:
Weather events like this have significant costs. In this case, the winter storm that hit Texas caused electricity prices in the state to surge 10,000%. Thankfully, consumers don’t see those types of charges, as that is ultimately what the power producer charges the power providers. And Texas has a unique situation when it comes to energy. It produces more than any other state, and yet, a blizzard all but knocked everything completely out of commission.
We’re all caught in the whirlwind: The winter storm was something of a freak weather event for Texas. But as we know, these freak weather events are becoming increasingly common, and increasingly expensive.
From a Yale write-up citing U.N. data:
From 2000 to 2019, there were 7,348 major natural disasters around the world, killing 1.23 million people and resulting in $2.97 trillion in global economic losses.
By comparison, the previous 20-year period, 1980-1999, had 4,212 natural disasters, claiming 1.19 million lives and causing $1.63 trillion in economic losses.
So, it may be useful to start thinking about the financial and economic costs of bad weather. It’ll take Texas some time to thaw out, but we have to consider what the fallout will be if these types of winter storms become more common in the South. Homes there aren’t built or insulated like they are in northern parts of the country. The power systems aren’t designed to handle it, either.
Heat can cost us all, too. One interesting thing I came across recently was that hot days can actually have an impact on a person’s future earnings — hot days while they’re still in utero.
A 2017 study published in the Proceedings of the National Academy of Sciences found that (as covered by The Atlantic): “fetuses and infants exposed to a single extra 90-plus degree day made $30 less a year, on average, or $430 less over the course of their entire lifetimes. Right now, the average American only experiences one such day a year. (This study looked at the average temperature throughout the entire day, not the highest temperature that day.) By the end of the century, there will be about 43 such days a year.”
The takeaway: The weather can hit us all in the wallet — some more directly than others. And it’s only going to get worse.
If this is a topic of interest, I would recommend reading “The Uninhabitable Earth: Life After Warming,” a 2019 book by Davide Wallace-Wells. I just finished it, and, uh, it didn’t help me sleep at night.
(An aside: Amy Klobuchar got so pissed off that she once ate a salad on a plane — with a comb.)
A maximum wage?
The idea of a “maximum wage” has been gaining traction on the fringes.
The idea: A maximum wage is the inverse of a minimum wage: It’s a wage ceiling, rather than a wage floor. In theory, it would mean that someone couldn’t earn more than a predetermined amount of money without breaking the law.
Yes, some people are actually talking about this — crazy people, like Jesse Ventura, but people nonetheless:
The argument: What proponents of a maximum wage are taking aim at is wealth inequality, which is a big and growing problem. Since the late 1970s, CEO compensation has 940%, while the typical worker’s compensation has only increased 12%, according to data from the Economic Policy Institute.
This is the type of thing that a maximum wage proposal would look to reverse, or at least offset. More money in the hands of more people should be, in theory, better for the economy, too.
Is it crazy?: While there may be a somewhat compelling argument for a maximum wage, it’s hard to conceive of a way that it would actually work. Aside from the philosophical questions (do we really want to put a cap on earnings potential?), would you only make this apply to CEOs? Would it include only money earned through a paycheck, or include capital gains and side business income as well?
It doesn’t really seem feasible. Nevertheless, it’s an idea that you’ll probably hear more about in the future, especially if we continue to ignore the issues created by wealth inequality.
Is it insane to buy a new car?
The price of a new car is outrageous. Yet, we keep buying them up.
I’ve harbored this idea for a long time: Buying a new car is the worst financial decision you can make.
Years ago, I was working in a retail shop. I had a regular customer (a couple) come in, and point out that they had just bought a brand-new mint green Fiat 500, which was in the parking lot. They liked it, they said, and let it slip that they were going to pay $700 per month for it.
I don’t remember my exact words, but they were something along the lines of “yeah you need to take that damn thing back to the dealership right now.”
I hardly knew these people. But I knew damn well that they couldn’t afford that car. But since then, I’ve come to learn that their decision to buy it (and assume hefty monthly payments for the privilege) is incredibly common.
In fact, it’s in response to the crazy price of new cars. As of December 2020, the average cost of a new car crossed $40,000.
Seriously, though — new cars are expensive. Prices have increased, on average, 5% from a year ago. And used cars aren’t cheap, either. Between February 2020 and February 2021, used car prices are up more than 17%.
And data from LendingTree shows that the average monthly payment for a new car is $563 as of this month. The average APR is 9.64%. And the average loan term? 70 months — six years. So, for the average, that’s $6,756 every year for six years, for a grand total of $81,072.
There are numerous factors driving the increase in costs, like regulations requiring certain technologies (back-up cameras, for example). But consumers are also gravitating toward costlier models — like trucks and SUVs, and vehicles at higher trim levels.
Then, add in insurance and maintenance costs, and the price of getting a “Calvin-pees-on-something-you-hate” decal, and it’s hard to reconcile the enormous cost that a new car can be to the typical American.
But we’re convincing ourselves that vehicles aren’t that costly — that’s why we’re opting for longer loan terms. It keeps those monthly payments low.
I have a hard time thinking that the average American car-shopper is heading out to dealerships and planning to spend 80 grand on a Mazda 5, or something equally unsexy.
But apparently, people are. At these prices, though, it’s a seriously questionable decision, especially given that an awful lot of people are struggling right now. Unfortunately, owning a car (or having access to one) is a necessity for millions.
We can’t all walk, bike, take an Uber, or hop on a bus to get to work. If you can, then financially speaking, that’s probably the best thing to do. But if you can’t? Then buying a new car, fresh off the lot, probably isn’t a good way to go. Depending on your situation, it may be crazy.
In my mind — and this is only my opinion — but new car prices (like stock prices!) have gotten so far out of whack with reality that it’s only a matter of time before some sort of — let’s call it a “correction event” — occurs.
So, what can you do if you need a vehicle? Shop around for a used car that doesn’t have a ton of miles, and make sure you maintain it. In terms of bang-for-your-buck, that’s likely the best course for most people. And there are millions of options out there. But then again, I’m no expert. I just think we should try to make the most responsible decisions we can.
I do think, though, that there’s a car out there for everyone — even if it’s not what you may have envisioned.
Numbers and links
$2,400: The approximate price of an ounce of palladium, a precious metal used in catalytic converters, which are being stolen left and right from people’s cars. (New York Times)
$2.1 billion: The value of Dogecoin held by one mysterious person or entity, after the joke cryptocurrency has gained significant real-world value. (Wall Street Journal)
-89%: The change in the price of solar power over the past ten years. (Fast Company)
1988: The last time the women’s labor force participation rate was so low, and it’s currently at 57%. (National Women’s Law Center)
250,000: The number of unsolved murders in the U.S. — a number that increases by 6,000 every year. (Texas Observer)
100 million: The number of workers in the world’s top eight economies that may need to change professions by 2030. (Bloomberg)
“Not Pretty, Not Rich” is a newsletter about money, finance, and the economy, written by Sam Becker. You can connect with me through my website, Twitter, LinkedIn, or send me an email at email@example.com. Also, if you enjoy this newsletter, I’d really appreciate it if you would share or forward it to others.
And remember, the contents of this newsletter are not meant to be taken as advice. It’s informational and entertainment only.