Tag Archives: personal finance

what Americans pay for their cars

I am not a member of the 1% by any means, but one key to my personal financial stability has been not owning a car for the last 21 years. People shell out enormous amounts of their income to buy, lease, maintain, repair, replace, and park personal vehicles. And that doesn’t count what you are paying in terms of your home value, property taxes, and gas taxes to maintain all that car focused infrastructure out there. Nor does it count injuries and deaths due to crashes (well, to some extent you pay for that through your car insurance and health insurance), and certainly not the costs of obesity, heart disease, and diabetes due to the opportunity cost of driving relative to spending that same time on some form of physical activity. Finally, people and nature are paying the costs in terms of air and water pollution and heat in more abstract ways (pain, death, knowing ecosystems are being destroyed) if not in dollars.

And of course, for many communities people choose to live in, that personal vehicle is absolutely necessary to get to jobs, school, and put food on the table. I’m just saying where you choose to live is a choice, at least in the longer term. If you want to live in a less car dependent community, you may not be able to change your situation overnight but you could set a goal to change your situation say within 3-5 years. Anyway…

This Jacobin article (which is an unapologetic socialist magazine?) has some interesting facts and figures on what Americans are spending on their private cars.

The country just crossed over a critical threshold last month: 5.1 percent of car owners are at least ninety days delinquent on their loans. This is almost touching the record high of 5.3 percent, reached during the nadir of the Great Recession in 2010. Young people are unsurprisingly hardest hit, with 7.5 percent of car-owning Gen Zers delinquent. The trend for all is upward for the past eight quarters — and expected to continue.

Auto insurance rates are up 56 percent in the past five years; car repossessions are also at post-Recession highs, at 1.73 million so far this year; and car repair costs popped 32 percent in the past two years alone, exacerbated by Donald Trump’s new tariffs. In 2023, a Federal Reserve Bank survey found that car repairs won out over rent, mortgage, health care, and food as the cost that Americans were most concerned about.

Consumers have responded to all this pressure by extending the terms of their loans to decrease their average monthly payments. Yet interest rates have kept rising. The average American is forking over between $550 and $750 a month on their car note, a number that used to be a monthly rent a decade prior. Today 20 percent of all newly originated car notes are over $1,000 a month, and you’d be mistaken to think that only the top income quintile is represented in that number.

$500-1000 per month is a lot of money, and I think that is just the loan payment.

the next recession

The next U.S. recession could be a rough one, according to Harvard economist Martin Feldstein. The argument is that the Federal Reserve will continue to raise short term interest but very gradually, not leaving itself a lot of room to lower them when a recession hits. At the same time, due to the pro-cyclical tax cuts, the government will not be able to increase deficit spending by a lot because it will not be able to afford the increased interest payments. And third, low unemployment seems to be causing inflation.

It would not be surprising if the rate on ten-year Treasury bonds rises to 5% or more over the next few years. With an inflation rate of 3%, the real yield will be back to a normal historic level of over 2%.

This normalization of the ten-year interest rate could cause the P/E ratio to return to its historical benchmark. A decline of that magnitude, from its current level of 40% above the historic average, would cause household wealth to shrink by about $8 trillion. The historic relationship between household wealth and consumer spending implies that the annual level of household consumption would decline by about 1.5% of GDP. That fall in household demand, and the induced decline in business investment, would push the US economy into recession.

If you have an enormous nest egg, a 2% real return on bonds doesn’t sound all that terrible. For the rest of us relying on stocks to help us build that nest egg (those of us lucky enough to have a little extra income to save, that is), this doesn’t seem like good news.

AAA study finds car ownership better than ride sharing

My headline above is true, but misleading. What AAA really did is answer the question under what conditions owning a car is cheaper than ride sharing, and there are some. AAA found that owning a car can be more cost-effective than ride sharing…for people who drive about a thousand miles a month, have “free” parking, and choose a used car. That may indeed describe the average suburban American, and I am not criticizing people who choose that life style. But in my opinion, many people do not choose it but default to it without realizing other options are possible.

I live in a dense city (in a single family home with a small front and back yard, not a high rise apartment.) My family walks for most work, school, and shopping trips. Street parking is cheap but scarce, and garage parking is very expensive (you can’t have cheap, abundant parking and high density together.) Ride sharing has been a great innovation for the occasional trips where a car is the best option, and particularly great for getting home from somewhat far-flung places where calling a taxi used to be a very unreliable and expensive option. We simply don’t worry about getting stranded places any more, which used to be the single most annoying thing about not owning a car. I guess that means we take a few trips now that we wouldn’t have in the past, and if enough people are doing that it explains why ride sharing has increased traffic a little bit – and why that is a good thing.

Anyway, my point is that the AAA conclusion is not a general one that would apply to my situation. And my situation is one that anyone can choose to be in, maybe not tomorrow but if you want to live in a high-density, walkable residential area you can plan that and make it happen within a few years.

apps for splitting bills

This Learnvest article mentions a few apps for splitting bills that I hadn’t heard of.

  • Splitwise: If your group is taking turns covering expenses (“you get this dinner; I’ll get the next”), track them with Splitwise. This app keeps a running total of who’s covered what, so you can settle the difference at the end via Venmo or PayPal.
  • Billr: Perfect for large parties, this app lets you split a bill with up to 16 people so each person pays for what they ordered, plus their portion of any shared items, tax and tip. You can also send each person a copy of the split bill in a text or email.
  • Divvy: Snap a photo of your bill and drag each item to the appropriate person (uploaded through your contacts) and Divvy will automatically add up what each person owes, plus tax and tip.

the CFPB

Simon Johnson says the Consumer Financial Protection Bureau has actually been doing a good job up until now of, well, protecting consumer finances.

The CFPB was established by the 2010 Dodd-Frank financial-reform legislation to do exactly what its name implies: protect consumers in their various financial transactions. A new agency was needed because existing regulators, including the Board of Governors of the Federal Reserve System, had manifestly and repeatedly failed to protect consumers from abuses, such as deceptive and fraudulent mortgage-lending practices, some of which were at the heart of what went wrong in 2007-08.

As Elizabeth Warren (then a consumer advocate, now a US senator from Massachusetts) powerfully pointed out, there was a lot more protection for people buying toasters than for someone taking out a 25-year mortgage. Finance is complex, and a lot of devils could be, and were, hidden in the details. The CFPB was designed, above all, to bring greater transparency to consumers’ financial transactions – actually a very pro-market contribution.

And the CFPB has done exactly what Congress designed it to do. So far, the Bureau has arranged for the return of almost $12 billion to 29 million consumers. At the same time, banks are reporting record profits – on the order of $171 billion, according to the latest data. The CFPB is good for business, or at least for the straightforward, transparent business of traditional lending.

Unfortunately, all this seems likely to end as Trump has appointed someone to head the agency who is actually against the agency’s existence, not unlike his approach to the environment, housing, and education. Johnson seems to think the public will catch on to this and punish the Republicans politically when the little guy starts to get hurt by it. I don’t know, it probably depends on the timing. Nobody wants to see another financial blow-up, but if it has to happen mid-2020 seems as good a time as any.

buy or rent?

This academic study says that people who own houses are richer on average than people who do not. But generally, renting costs less per month than buying, so the answer must be the build-up of home equity and price appreciation, right? Well, one conclusion of this paper is that theoretically, if you rented a house for a long period of time, and invested the amount of money you saved compared to paying a mortgage diligently every month, you would come out ahead in the long term over most periods of recent U.S. history. But this doesn’t happen, so maybe the answer is that the type of people who rent homes are not the type who invest, on average, and vice versa.

I wonder if they factored in my mortgage and property tax deductions, which I am hoping do not go away. I’ve always wondered – if two friends bought equally priced houses, rented them to each other, and paid taxes as landlords rather than homeowners, would they come out ahead or behind? As a landlord you can deduct all your maintenance and repair costs, plus depreciation which is just a weird thing that only exists on paper. Would there be anything illegal about this? Could family members do it? If so, why don’t they?

I’ve owned, and rented, and been a landlord and a tenant at the same time, because I’ve moved around and been in some weird situations with a growing family and that was the easiest thing to do. The best thing about renting is how easy it is. If you want to rent a place and really put some effort into it, you can live there just a few days later. I did that once although I had to clean it myself when I got there. The best thing about owning a place is you can mess with it if you want to. Especially the yard if that is your thing. And if that is your thing, it’s a little hard to put a financial price on.

Financially speaking, the man puts money in one of your pockets and takes it out of the other, as far as I can tell, and if you play it just right you have a few pennies left to save for a rainy day. Then you eat, sleep, shit, and do it again, and that is how the financial part of the world works, so it is best to look for meaning in other parts of the world.

browser extensions to get cheaper stuff

This blog is not about how to get more stuff. It’s not about how to get cheaper stuff. For the most part, I am almost totally against stuff and the idea that life is about getting more of it.

But there is in fact some stuff I need and even some I want. So I might occasionally mention a story about browser extensions that help us get more stuff cheaper. But we have to be disciplined! Just because we can get cheaper stuff does not mean we should get more of it. Try to get used stuff if you can, and try to get rid of some when you get some new stuff. But if there is a thing you are absolutely going to buy new, no matter what, whether you have any of these browser extensions are not, then go ahead and see if they will help you get it cheaper.

Mr. Money Mustache on medical tourism

Mr. Money Mustache discusses medical insurance in general in this post. His first suggestion is to consider going without. I suppose it could be rational for a young person with no assets to take this gamble, especially if they can minimize time spent in and around motor vehicles. Beyond that, yes, retiring abroad or medical tourism are both options. I used to get an annual checkup in Singapore for $69. And in an experience I would not wish on anyone else, I had a child hospitalized in Thailand for 8 days including 2 in intensive care. The total bill was $2500 including take-home medication, probably a tenth the U.S. cost. I had to pay up front but my U.S. insurance is more than happy to pay me back. Of course, you don’t want to get a plane when you are desperately ill, but you could easily combine routine checkups and dental cleanings with travel you are planning anyway.

When Your Shitty Health Insurance Doubles in Price

 

annuities

Annuities – I admit they sound like a boring topic. But what is not boring us thinking about you might want to do with your relatively short life of earth, and thinking outside the box about the tools available to you. Annuities are one of those tools.

Fixed SPIAs make retirement planning easier in exactly the same way that traditional pensions do: They’re predictable. If you know that you need $X of income each year in retirement, you can go to an online annuity quote provider, put in $X as the payout, check “yes” for inflation adjustments, and you’ll get an answer: “For $Y, you can purchase an annuity that will pay you $X per year, adjusted for inflation, for the rest of your life — no matter how long you might live.”

Pretty easy, right? You now have a specific figure for the minimum amount of savings necessary to retire safely. With a traditional stock and bond portfolio, retirement planning is more of a guessing game.

Fixed SPIAs are also helpful because they allow you to retire on less money than you would need with a typical stock/bond portfolio.

You could work hard and live frugally while you are young, then turn over your savings to an insurance company at some point and continue to live without working hard. People typically do this at retirement age (i.e. when they are old), but you could do it at a younger age and continue to live frugally without working hard, or you could work part time and pursue a passion part time, or you could spend more time with young children than hard working middle aged parents typically do, or you could take the risk of starting a business knowing that failure wouldn’t ruin you. You could turn over part of your savings, continue to work somewhat hard, and pursue some combination of any of the things on my list above. You could make gradual transitions from one mix of activities to another.

Now, do I really practice what I am preaching here? No. I work like a dog to support a family. I’m a conservative person, and I particularly worry about my ability to meet the costs of health care and education in the future. But I also ask myself each day what choices I am making right now that I might regret when I am looking back some day.