Pay raises for everyone!!!

Ok, so Congress is raising the minimum wage.

Good for them.

Yippee.

 

I keep reading articles like this one from MSNBC and the Washington Post.

Living on $900 a month is tough.  Really tough.

Granted, since I’m a “money guy” by profession my ears perk up at these articles.

There’s no way of getting around the fact that living on $900 is tough.  A lot of us spend more than that in a house payment.  Some of us even send more than that to Mastercard each month.

I bet there’s more than a few who spent more than that for crap we don’t need last month.

 

If you read carefully, though, you’ll see the problem for the main character in the article isn’t the income.

They run down his monthly expenses and one stick out head and shoulders above the rest—a $313 car payment.

The kid owns a used 2005 Dodge Neon and is paying $313 a month through 2012.

Simple math says he’s paying a total of $18,780 for that car, assuming the full 60 months’ note.

To put it in perspective, my lovely wife and I are paying about the same for a brand new 2005 Taurus that will be paid off 2 years sooner (and is the last car payment I’m EVER going to make).

In excellent condition, a 2005 Dodge Neon, automatic, with 30,000 miles, middle trim, retails at a suggested value of $11,780 according to Kelly Blue Book (KBB.com).  That means this kid is paying something north of 20% interest.

20% INTEREST!!!!  (And the credit card companies wanted to make it harder for people to declare bankruptcy.)

The problem, friends and disinterested visitors, is NOT the income.  The problem is predatory lending practices that have a kid paying 70% of the value of a loan out in interest over the life of the loan.  The problem is banks taking advantage of people who are just proud to have a vehicle.  Hell, from what he is quoted as saying in the article he couldn’t be more proud to give away 1/3 of his income each month on a car that won’t outlive the loan he’s taken out on it.

It’s not an easy solution.  I’m talking about a cultural shift from consumption to wealth building.  From moving away from debt based purchasing to wealth based purchasing.  Instead of taking out a 5 year loan to buy a car you’re only going to keep for 3 years, save up money for 6 or 8 months and BUY a car you’re going to OWN for the next 3 or 4 years.  I guarantee the kid from the article could have bought a car for something south of 6 month’s pay had he been patient.  Besides, the thing only needs to get him 19 miles to and from work each day.  Throw in another $50 for a bike to act as an emergency vehicle if the primary breaks down and he’s standing in high cotton.

Plus he has his chief source of wealth building back in his own control—his income.

What can a kid in rural Kansas do with an extra $300 each month?  Damn near whatever he wants.  This is, after all, still the land of opportunity.