Many people in America are “car poor, ”which means they are dumping much of their cash into their vehicle. Just like being “house poor,” this is when you dump money into something you own only to end up being broke.
The vast majority of Americans own cars. Overall, most of us are a part of this society that is draining their bank accounts in order to get from point A to point B. Take a look at the 20 ways cars keep us poor here.
20. Owning A Car Is A Necessity
The United States has such wide-open spaces that there are plenty of places without public transportation. And even when it does exist, it’s not always reliable. When buses are late, it means trouble at work, which is why most people are forced to own a car. According to the Department of State, 85% of Americans own cars. Those who don’t own a car typically live in a city or have access to rides when they need them.
Some people would see this as a huge advantage to the rest of the world because Americans have the freedom to go anywhere they want. However, it’s also a financial burden. As soon as an American becomes an adult, this is an expense that nearly everyone takes on.
19. Easy to Get Car Loans
Have you noticed how difficult it is to get a mortgage or a credit card with a high limit, and yet it’s easy to qualify for a 30,000 car loan? Money is still money no matter where you borrow it from. But car companies make it extremely easy for people to take on debt. Most people justify getting a car loan because they realize that they need a vehicle to get to work, so lenders take full advantage of American’s need for transportation.
One of the biggest mistakes people make when purchasing a vehicle is not shopping for car financing. They will often ask the dealership to apply for loans on their behalf. It’s actually far better to look for car loans from your existing bank and credit card companies. They will often give you a much better deal on interest and monthly payments.
18. Cars Cause Bankruptcy
A lot of people don’t realize that just because you get approved for a car loan doesn’t mean you can actually afford it. You still have to make a budget to figure out what you can pay. This puts people in awful financial situations. Car repossessions are on the rise as there has been a sharp spike in people defaulting on their car loans since 2018. As of 2019, there were more than seven million Americans whose car loans were more than 90 days late, which is grounds for repossession. At that point, some people need to file for bankruptcy to keep their creditors at bay.
Aside from medical debt, credit cards and car loans are the leading cause of bankruptcy in America. According to Justia, some people have to file for bankruptcy in order to prevent a company from repossessing their car. Even so, there are still circumstances where a lender can still take your car even after filing for bankruptcy.
17. A Poor Public Transportation System
Unfortunately, the United States has one of the worst public transportation systems in the world. Buses are often late and unreliable, and bus stops are often uncovered during inclement weather. There is also a social stigma that only the poorest would resort to using the bus, which makes people feel less inclined to take it unless they are truly desperate.
But this attitude may be changing soon. According to the US Census Bureau, the number of car-less households has increased ever-so-slightly from 8.9% to 9.1%. This isn’t a huge change, but it is significant because the number of households with at least one car has been increasing since the 1960s. This trend could be due to the availability of rideshare apps like Uber and Lyft. Millennials are also becoming more conscious of vehicle emissions affecting the environment and may hold off from buying a car until it is completely necessary.
16. The Outrageous Cost of Car Repairs
When you’re struggling with money, expensive car repairs can be absolutely devastating. In my teens and early 20’s, I was working multiple part-time minimum wage jobs. I drove a beat-up old car that I bought with cash to get to work since I couldn’t afford a monthly car payment.
Since I was making so little money, I would struggle to save up a few hundred dollars in savings. Then it was almost like my car knew because it would break down, and I needed a repair, which wiped out all of the money in my savings account. Eventually, when I got to my mid-20s, I bought a much newer car because I realized that the amount I was paying averaged out to $300 a month for repairs. That is the cost of a newer car payment, minus the stress of my car breaking down all the time.
Clearly, I was not alone in my struggles with car repairs. Whenever I would express my frustrations of this cycle, older adults would shrug their shoulders, and say, “That’s what savings are for.” Everyone seemed to be complacent with the fact that cars ate up all of their money. Most American households have less than $1,000 in savings and can never seem to get ahead. If something goes wrong with their car, it is likely that it would also wipe out their savings account. Or it would need to be charged to a credit card. Someone who uses public transportation would never have to deal with this sort of issue.
15. Cars Depreciate in Value
If you buy a brand-new vehicle, your car loses 10% of its value as soon as you drive it off the lot. In five years, the car will lose 40% of its original value. This would be considered a terrible failure of an investment if you were to put that same amount of money in the stock market. Yet people think it’s a completely acceptable way to spend their money. Depreciation happens to every car out there. Even if a car holds long-term value, it usually takes decades for this to happen, and there is really no way of predicting the future to see if it will actually be worth something down the road.
The best way to reduce your losses from depreciation is to buy a car that’s already a few years old with a low amount of mileage. A car’s value has already decreased to the point where you aren’t likely to lose much more money. For example, I bought a three-year-old car from Carvana that was a former lease model with 10,000 miles on the odometer. The original price of the car was $36,000, but I got it for $16,000 after taxes and fees. This means the value had already dropped $20,000 in 3 years. According to Kelly Blue Book, my car is only worth $12,500 now that it’s five years old. Losing money is bad either way, but at least it only depreciated $3,500 from its value instead of $23,500.
14. People Always Want An Upgrade
Just like everything else in life, once you have used an object for a long time, you start to get tired of it. As the years go on, technology improves, and so do cars. People want to look stylish and hip, so they’re willing to continue buying new cars in order to keep up with appearances. There are some professions were this matters more than others, but some people truly feel as though they need a new car to be taken seriously in their field. Others have a “dream car” that they want to get someday when they make more money. Plenty of people will swap out their cars earlier than necessary.
According to a study by CNBC, people typically bought a new car every five years. But after the Great Recession of 2008, people had to hold onto their cars longer and the average went up to 8 years. The average car loan is around five years before you pay off a car. This means that people were keeping themselves in a perpetual state of debt with car loans. Even now, someone may only give themselves a short grace period before jumping back into a new loan instead of paying off the car in full and holding onto it for 10 years.
13. Price For Used Cars is Rising
For a long time, buying a used vehicle was seen as a way for people to save money. Unfortunately, now the price of used cars is getting higher. According to a report by Reuters, the increase in the number of people losing their cars is beginning to have a direct affect on the prices of used cars.
As people lose their car to the repo man, the demand for cheaper used cars has done up, and so have the prices. For many low-income Americans, they knew they could save up some cash and buy a car at a local dealership. But prices will continue to go up since demand is so high. Obviously, this only makes life more difficult for the poor.
12. Car Accidents Are Costly
According to the National Highway Traffic Safety Administration, the United States pays $871 billion every single year for car accidents. This amount includes the cost of government assistance, insurance claims, medical care, loss of life, loss of income or lifestyle, and the list goes on. Compare this to England, where the government spends only 2.2 million British pounds on accident prevention, and the actual total of what gets paid for a year of accidents is just $26,000. The number of car accidents per year is also significantly smaller. One can only guess that this is because public transportation is amazing in England, making it possible for most commuters to take a train or bus to work.
To make matters worse, insurance experts say that the average American will be involved in four car accidents during their lifetime. If you have car insurance, you will probably be covered if the accident was not your fault. However, if you make a mistake, it could end up costing you a lot of money. Even if you’re fully covered, being in an accident takes away your time, and can be traumatic.
11. Gas Prices Keep Getting Higher
It’s no secret that gas prices keep getting higher in the United States. Prices change all the time, but at the time this article was written, the national average was $2.43 per gallon, according to AAA. The average American also pays $386.09 per year on gas. A few years ago, it was closer to $4 per gallon, so it has gotten better by comparison.
However, back in 1970, gas was only 36 cents per gallon. As time goes on, it will only become more expensive to drive. Cars typically have better gas mileage, and people are starting to buy more electric and hybrid vehicles. For the people who are focused on optimizing their mileage, they might be able to save money. But for the millions of Americans who can’t afford an electric car, they have no control over how efficient gas mileage is.
10. The Increasing Number of Super Commutes
The definition of a “super commute” is when someone has to travel 90 minutes or more to go to work. This trend is on the rise in the United States and has risen by 32% in the past 10 years. This is more common for people who live near major cities but it’s too expensive for them to live there. On the TODAY show, they interviewed a mother who worked as a nurse at a hospital in San Francisco, and she had to commute three hours to work each way, totaling six hours of travel every day.
In this case, it’s not so much that cars are keeping people poor, but the expectation that society puts on people that driving to work is the norm. And if you need to drive long distances to find a better job, so be it. Time is one of the most valuable resources people have. Even if you are a millionaire, you still only have 24 hours a day just like everyone else. So if you are wasting several hours each day just getting from Point A to Point B, it can cut down on your productivity and energy levels.
9. Multi-Car Households
Americans in the middle and upper class typically live in multi-car households. Until 2006, the average amount of cars per household was two. This is due to the fact that both partners may have full-time jobs. Even stay-at-home moms need their own vehicle to take their children to sports practice, doctors’ appointments, and grocery shopping. So instead of coordinating with each other’s schedules, Americans choose the most convenient option even if it’s far more expensive.
As someone who grew up in a multi-car household, we saw our extra cars as a safety net. If something went wrong, we always had a backup so someone could give us a ride to work or an extra vehicle to borrow while the other gets repaired. However, in today’s world, you can call an Uber to get a ride if you car needs to get repaired for one day. The cost of paying for a few rides in emergency situations is far cheaper than having an actual vehicle per person.
8. Cars Aren’t An Asset
Unfortunately, most people don’t know the difference between a liability and an asset. They wrongly assume that their car is an asset because it is something they are buying that holds long-term value. Once the car is paid off, you can usually get something back if you choose to sell it later. Just because you can resell something later for less than what it’s worth doesn’t make it an asset, however. Cars are actually a liability.
We already mentioned how you immediately lose value in your car through depreciation. This happens to both new and used cars, so you are always losing money when you buy a car no matter which one you buy. An asset is something that holds value that will make you money. For example, if you buy a house that is a fixer-upper, you could buy the home at $150,000 and put in $50,000 of work. If you sell it later for $250,000, you are netting a $50,000 profit. See the difference? Rich people work on increasing their assets and decreasing their liabilities. This is actually one of the major differences in mindset between the rich and poor.
7. Owning a Car is Linked to Job Opportunities
In America, there is a direct correlation between high rent prices and access to opportunities. The more expensive somewhere is to live, the closer it usually is to high-paying work. If you grew up in a poor neighborhood, the businesses in your immediate vicinity might only pay minimum wage. The Atlantic published an article called, “How Car Ownership Helps the Working Class Poor Get Ahead”. They explained that there is a direct correlation between poverty and car ownership in the United States. Out of the small percentage of households without a car, they are often living on housing vouchers, and would otherwise be homeless. Once they own a car, they get more access to better neighborhoods as well as work opportunities.
Some people would see this data and come to the conclusion that we need to give the poor access to cars. However, this speaks to the American mindset where it’s normal for everyone to own a car. In countries like England, only 77% of households own a car but people still get access to good jobs because the public transportation system is far superior to the US.
6. Add-On Fees
When you buy a car from a dealership, salespeople will always try to add on extra fees to make the price of the car higher. These are upgrades that aren’t actually necessary or could be done by yourself for a fraction of the price. Keep in mind that once these are added onto your total bill, you are also paying interest on these add-ons. Before you buy a car, always check the itemized list of add-on fees. Sometimes, you can completely avoid certain fees, like the extra key fee. It would be far cheaper to get a spare key made at Home Depot.
To make matters worse, it’s been proven that car salesmen target minorities with these add-on fees. They assume that black and Hispanic people are uneducated or may not be able to speak English as their first language. So they will add on loads of extra fees knowing they are less likely to dispute the charges than white people. If you are young, they will most likely try to pull this trick on you as well. So always make sure you read your agreements carefully, and dispute anything you find to be unfair. Also, Google is your best friend when you have any questions.
5. People Are Nervous to Sell Cars
People who buy from dealerships typically trade their old cars in for a down payment. They assume that they are getting a good deal, but the reality is that you lose money every time you hand over your old car to a dealership. The average person loses $2,340 when they trade in a car.
Everyone has the ability to sell their own car, but they just might not have the confidence to do it themselves. If you have no experience with this, check out Dave Ramsey’s article called “How to Sell a Car.”
4. Health Hazards
Anyone who has anxiety already knows how nerve-wracking it can be to drive in traffic. Some of us tense up, have back spasms, and high blood pressure when driving in terrible circumstances. According to Web MD, driving is actually hazardous to your health and can potentially lead to your death. Distracting yourself by texting while driving, looking at the GPS, or any other distraction has been known to cause more accidents than anything else. One-second distractions kill 42,000 people every single year.
Compare this to train-related deaths, which total only 1,000 per year. As you can imagine, most of those death happened to drivers who tried to cross a track without noticing that a train was coming. Basically, if you didn’t drive, the odds of you dying an early death go down exponentially. For the families whose loved ones have died, it can be devastating both financially and emotionally.
3. Parking Tickets
It’s no secret that traffic and parking tickets are a huge expense. This especially true if you live in a city where it’s difficult to find parking. Police officers try to find reasons to pull people over in order to meet quotas by giving out traffic tickets. The average cost of a speeding ticket is $152, which can be devastating to someone who’s on a tight budget. Obviously, if you used public transportation to commute to work, this would be a non-issue.
To make matters worse, when people can’t afford to pay their parking and traffic tickets, you may have to go to court to fight the charges. This means taking time off of work, causing you to lose money. And if you don’t have time to deal with the issue, they can put out a warrant for your arrest because you haven’t paid your tickets.
2. The Annual Cost of Ownership
Even if you own a car outright, having a car is never free. The average cost of car ownership in the United States is $2,671 per year just for insurance, repairs, fuel and registration. Of course, most people also have to worry about their monthly car payments on top of the normal upkeep.
The average payment for new cars is $554, while used cars are $391. Multiply those figures by 12 months in a year, this means people are paying between $4,692 to $6,648 per year on their monthly payments. If you add on the average cost for everything, it means most people are paying more in the ballpark of $8,000 per year. For someone who makes minimum wage, this is completely unaffordable. But it’s still common to see people in low-income jobs driving nice cars.
1. Parking Passes
If you live in a city, you’re already used to the idea of paying for parking, or getting a special permit. In rural areas, there is plenty of space to park, and it’s always free. But on college campuses and urban areas, you will always need to pay something to park your car.
The price of parking passes will change depending on where you live, but many places require at least $50 a month to purchase a permit. Some cities will allow you to pay a flat fee to get a permit for the entire year, but it usually costs several hundred dollars upfront. To some people, $50 a month doesn’t sound like a lot of money. But if you are young and struggling to make ends meet, this can put a huge dent in your expenses.