The true cost of car ownership

It seems Millennials aren't buying cars. Well, they are, but not as many as their parents. Worse yet, they don't even seem to care that they're not buying them. They're not even getting driver's licenses, for Chrissakes.

Everyone's remarking on the trend, and everyone has a different set of explanations. NPR ran a puff piece a few days ago suggesting that cars are losing their position as key status symbols for teenagers. The Atlantic points to the rise of smart phones and car-sharing services, among other culprits. Time echoes the "cars aren't cool" teen sentiments revealed by several opinion studies, while also citing the views of automakers that it's the economy, stupid, and when jobs pick up, the kids will buy cars just like their parents. (Forbes, ridiculously, says it's just that young people are pickier than ever – that if they can't have a BMW when they're sixteen, they'll wait until they're eighteen. Because of course they're getting a Beamer.)

Every article mentions the high cost of owning a car. It turns out – surprise! – that owning a car is really expensive, and a lot of young people, especially those living in the city with its greater car-owning costs and transit options, have realized they can't afford it. What I want to say here, though, is that a car isn't just really expensive. It's really, really, really expensive, representing for most people the largest portion of their disposable income. It is, in short, about the worst financial decision you can make, and if you can possibly avoid buying a car, you should. On a broader level, our society's obsession with personally owned cars is profoundly unhealthy, representing a huge misplacement of wealth that could otherwise be spent on desperately needed public investments.

So just how expensive is car ownership? AAA estimates that the average sedan costs $8,946 per year to operate. That's right: almost nine thousand dollars, including car payments, maintenance, insurance and gas.

This figure alone blows my mind. See, I don't own a car. Mostly I ride my bicycle, and occasionally take the bus. Once a week my girlfriend and I walk to the grocery store and carry our food home. When we want to go out, we walk to a nearby restaurant or bar – easy to do here in Seattle's urban Capitol Hill neighborhood.

The total cost of owning a bicycle? Well, I bought it new for about $600, with tax, four years ago. I bring it to a bike shop for regular professional maintenance, costing me at most $200/year. I've also bought a fair number of bike accessories, jackets, gloves and the like, so let's add another $200/year for that. And let's say I'll buy a new bike next year (I won't, but lots of people would), at a similar price.

My total yearly cost of ownership: $520.

But wait! What if I actually need a car? What if I'm moving? What if I want to go to Portland? What if I want to eat at a restaurant in Ballard? 

For this, I have a number of options. I'm a Zipcar member (I refuse to say "Zipster"), and a Car2go member. I can also rent from Enterprise if needed, and I never hesitate to take a cab.

Aren't those expensive, though?

It doesn't take a mathematician to see they're not expensive at all, compared to $9,000/year. Stop and think: for $9,000, you could rent a Zipcar at a daily rate of $90 for 100 days. More realistically, you could rent a car two days a week, every week – or more realistically yet, sign up for one of their heavy-user monthly plans, use a car two or three days a month, and save thousands.

Now, not everyone drives a new car. The amount spent on car ownership naturally tends to decrease with income, and the lowest 20% of income earners on average spend about $2,800/year. That's a far cry from $9,000, but still a lot more than the $1,000 or so I'll spend on my bicycle and car-sharing services.

The true cost of car ownership, though, is far greater than these figures alone, because they must be balanced against not just the money you would otherwise retain, but the money you could save, and the interest on that money. When you begin looking at car costs as lost savings, you realize that they represent, over the long term, hundreds of thousands of dollars.

Start with the average cost of ownership versus non-ownership. If I save $8,000/year, over ten years I'll have saved $80,000. Right?

No, of course not. There's interest accumulating on that. At an interest rate of 6.5% compounded monthly, you'll have saved $113,000.

So: after ten years, you could have a car, and whatever else you manage to save. Or you could have no car, and $113,000. And this is for an average car. Over a twenty-year period, the results are even more astonishing: by not owning a car, you could amass a golden nest egg of $329,000.

By now some readers are bursting with objections, the first of which is certain to be: "But I have to own a car. I need it to get to work. I need it to pick up my kids from school, and get groceries, and visit Mom in Bellingham. I can't do without it, and so all these calculations are meaningless."

For many people, especially those living outside of city centers, these objections are perfectly valid. In the long term I would question the wisdom of development models centered around cars – i.e. sprawling, inefficient suburbs – but in the short term, it's what we're stuck with. And of course the economic calculations involved in buying a car are far more complex than just choosing to ride a bike or take the bus. Owning a car can often mean a substantial increase in income, because it vastly increases the radius within which one can reasonably search for employment. This should really be balanced against the cost of owning a car – are you making $8,000 per year more? Can you move closer to work? – but jobs also aren't always just about the bottom line. For that matter, visiting Mom in Bellingham may not be a purely secondary consideration. Family is important, and if it costs a lot to visit our loved ones while maintaining a decent life for ourselves, that's a price many are willing to pay. And for those living outside of major cities, cars are often the only way to get anywhere. After eighty or ninety years of car-centered urban planning, it's how most of the country is built.

But I want to return now to the lower-income cost of car ownership. Less well-off people spend about $2,800/year. That's a lot more than the $1,000 I'll spend, but it's also a lot less than $9,000. How do they do it? First off, they drive cheaper cars, which is to say, they buy used. They also are more likely to have only liability insurance instead of full coverage, and drive less, because they're more conscious of gas prices.

However, they still own a car. They can still drive to work if they need to. They can still visit Mom, get groceries, and take the kids to karate class. They have all the mobility and convenience of every other car owner.

The point is this: Practically speaking, there is no difference between a cheap car and an expensive car. They do the exact same things and travel at the exact same speeds. Practically speaking, economically speaking, the latest model hot off the lot offers absolutely no more value than a ten-year old clunker. So why, why, why buy a new car? Why, people?

"Because it's cool! It's fun to drive!"

Crap. Total crap.

This kind of reasoning is for four-year-olds. Ask some little kids what they would do if you gave them a thousand dollars each, and they'll say, "I'd buy toys! And candy, lots of candy." The kids could do lots of things with that money. They could buy lessons, take a trip somewhere new and interesting, get something of lasting value. But because they're kids, they're not even aware of the possibility. All they want is the stuff they've seen advertised on Saturday mornings.

As adults, we need a broader perspective. We need to see that money doesn't just buy us toys; it buys us opportunities. When we choose to buy a car instead of a bicycle, or an expensive car over an inexpensive one, we are foreclosing on our own futures.

One last calculation: $9,000 vs. $2800, the average car cost vs. the low-income cost, a difference of $5200 per year. Over a ten-year period, with interest, you'd save $73,000. Over twenty years, it's $213,000. Remember: You still have a car. It works, it gets you everywhere you need to go. It's just not new.

Think of what you could do with that money. You could put a down payment on a house (a second house, for that matter, since you're probably paying rent or mortgage already). You could open your own business, exponentially increasing your earning power. You could go back to college on your own dime, and study whatever you want. You could give to charity. You could help out your friends and family and community in vital ways.

Or you could drive around a slightly shinier vehicle. You could (maybe) impress a few friends with your purchase, until it becomes old hat and you start to want a new one.

When I see a Lexus SUV or a BMW convertible, I don't see something that's "fun to drive." I see a terrible failure of the imagination. I see ambitions so small, dreams so circumscribed, that they seem drawn straight from TV commercials. I see individuals so unconsciously obsessed with status that they'll throw away their futures for the sake of a hood ornament.

And when you multiply these costs across a whole nation, across the whole Earth, you see something still more devastating: a world that devotes its energy to the shallowest of objectives, on mere possessions. With the money we waste on cars, we could do nearly anything. We could build high-speed rail lines through every metro area, construct a hyperloop, put a colony on Mars. We could end homelessness permanently, make higher education universally accessible, and pay for truly universal medical care.

All it would cost is to stop worrying about how shiny our toys are.