Friday, July 20, 2012

On not wasting money on cars

In this week's Dollar Stretcher newsletter, there was an amusing article called "How to Waste Money." In it, financial planner Rick Kahler departs from the usual advice we've all heard before on how to save money and instead offers some advice to avoid following. Most of his tips were the kind of suggestions I might make myself if I wanted to give some examples of bad advice, such as "Drive across town to save two or three cents on gas" and "Buy bottled water"—both dumb ideas that will not only cost you money but damage the environment as well. But I pulled up short when, in the section on "How to Waste Money on Big-Ticket Items," the first proposed bad idea was, "Buy hybrid cars."

Now I'll admit, when I bought my last car, I didn't invest in a hybrid. I concluded that paying an extra 10 grand for a 50-mile-per-gallon Prius rather than a 40-mile-per-gallon Fit just didn't make sense. Assuming we drive 12,000 miles a year, the Fit would save us only 60 gallons of gas per year, and I could get a better value for my dollar, greenhouse-gas-wise, by choosing the less efficient car and spending 30 bucks a year on carbon offsets. (And that's to offset all the CO2 emissions from the car, not just the difference between its emissions and those of a hybrid. If I wanted to make my new Prius truly zero-carbon, I'd still have to spend about $25 a year on offsets—so really, the Fit would only cost an extra $5 a year, as opposed to an extra $10,000 at the outset.)

If Mr. Kahler's article had made this argument—even in an abbreviated form, like "Buy hybrid cars, instead of choosing a gasoline car that's nearly as efficient for much less money and donating the rest"—I wouldn't have had any problem with it. But instead, he said without qualification that a hybrid is a waste of money—that choosing to pay extra for a car that won't save you money in the long run, just because it will reduce your carbon footprint (and possibly help just a tiny bit to slow the catastrophic overheating of the planet and the associated epidemics, crop failures, and mass extinctions) is simply throwing money away. Would he also argue that donating money to organizations that protect the environment is "wasting" it? How about giving to other types of charitable organizations, like those that distribute food to the hungry, build houses for homeless folks, provide legal assistance for those who can't afford it, or provide medical care in the Third World? Investing in helping others isn't going to improve your own financial lot, so doesn't that make it, by his reasoning, a waste of money? (Actually, giving to environmental causes makes more sense if you're considering your own interests only, since the problems associated with global warming will affect everyone, while giving to charities that help others can't benefit you in any way except emotionally.)

The other piece of negative advice in the article that I took issue with was also car-related: "Buy cars new instead of used." This is a guideline that I used to take for granted: if a new car loses ten percent of its value the minute it's driven off the lot, then obviously it makes more sense to buy a slightly used car that will cost a lot less and last nearly as long as a new one. So when we were in the process of shopping for our "new" car (which is now about one and a half years old), we initially assumed that we'd be looking for a late-model used car. However, we quickly discovered that there were almost no used cars on the market that met our requirements (efficiency, safety, and a manual transmission). We did eventually find one two-year-old Honda Fit with a stick shift, but we'd have to drive nearly 50 miles just to look at it—and when we compared its price to the new Fit, we found that we'd only be saving a couple of thousand dollars in exchange for a couple of years of life taken off the vehicle (or possibly more, since we couldn't be sure the original owners would drive as carefully and maintain it as scrupulously as we do). Doing the math, we realized that we'd be paying just as much per year of useful life for the used Fit as we would for a new one—and the new one would offer additional safety features, an improved music system, a warranty, and the convenience of a dealership right down the road. So as it turned out, for us, a new car was actually a better investment. Thus, I would amend this piece of bad advice to, "Don't do the math to figure out whether a used car is a better deal for you than a new one." Now that's definitely a good way to waste money.
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