Cars + HGTV = Debt

Cars are driving Americans to the poor house, and HGTV is helping to make the house unaffordable.

Let’s begin with cars.

According to a recent Wall Steet Journal story, 30% of car buyers trade in a car that is worth less than the outstanding loan balance on the trade-in.  In other words, they take out a loan on a new car, often for 70 months, while still having a loan balance on a car they will no longer own.  (“America’s Pandemic Car Bubble Is Now Trapping Buyers in Debt,” April 25, by Ryan Felton.)

To quote from the story:  “In 2026, buyers with negative equity financed an average of nearly $56,000 for a new car in the first quarter, about $12,000 more than the typical new-vehicle buyer . . . That translates to a monthly payment averaging $932 for negative-equity borrowers, the highest level ever recorded.”

On a related note, you’ve no doubt heard the hyperbolic narratives about the oppressive burden of student debt.  But you probably haven’t heard that student loans, on average, are less than what indebted graduates pay for new cars.  Even the left-leaning Urban Institute has admitted that 38% of those with a delinquent student loan also have an auto loan.

The institute further reported that as a result of President Biden pausing student loan repayments and giving the impression that the loans would be forgiven, some households with student debt “may have felt reasonably equipped to take on auto loans, enter the housing market, or expand their use of other credit products.”

The net result is that only 30% of the federal government’s outstanding $1.7 trillion in student loans is presently being repaid.

The institute didn’t report what indebted college graduates spend on lattes, craft cocktails, designer water, pot, concert tickets, gambling, food delivery, health clubs, personal coaches, cruises, streaming, throwaway clothes, facials, tattoos, blue hair, the latest Apple gadget, and psychological counseling or meds when they discover that the spending hasn’t made them happy.

Such spending runs counter to media narratives about Americans subsisting on beans, dying on the streets from Medicaid fraud being reduced, struggling to climb out of an income gap purported to be as wide and deep as the Grand Canyon, and wearing sack cloth because of student debt.

My mom is shaking her head from somewhere above.  When I was a kid, she drove the family’s 1951 stick-shift Dodge with rusted-out floorboards.  Seeing the expensive cars on the road, she’d often shake her head and say, “Think of the millions of dollars that are going by.”  On a similar note, my dad would say, “Most of the drivers don’t have a pot to pee in.”

That’s not a segue for me to recount how hard we had it back then, because in matters that matter, we had a good life.  Dad was a tile setter, Mom was a clerk, and both had immigrant parents who had held menial jobs. But both generations could afford decent but very modest housing in safe, clean neighborhoods, where there was an authentic sense of community.  They also could afford to send their kids to parochial schools.

It helped immensely that teacher unions weren’t the political juggernauts they are today, that taxes were significantly lower than they are now, and that housing hadn’t yet been made unaffordable by government housing policies and by Federal Reserve shenanigans.

HGTV didn’t exist, either.  As such, there wasn’t a temptation to be house-poor by having granite countertops, a kitchen island the size of an aircraft carrier, a six-burner stove, walk-in closets the size of a bedroom, and a second home in Costa Rica.

Today’s houses are twice the size of the houses of the earlier generations, and today’s families are half the size.  But Americans now have so much stuff that it won’t fit in the larger houses, thus often necessitating the renting of storage units.

My parents and grandparents and others of their generations were the epitome of frugality.  They saved pennies, nickels, dimes, string, paper, rags, buttons, pins, nuts, bolts, screws, and old clothes to hand down.  Then, they invested the savings in blue-chip stocks or other relatively safe investments.  When they passed, they left estates that were sizable relative to their station in life.  Equally important, they also bequeathed lessons about the wonders of compound interest and the dangers of compound debt.

They didn’t have college degrees, but they knew something that today’s college graduates don’t seem to know:  Fools and their money will soon be parted if they watch HGTV and take out 70-month car loans.

Mr. Cantoni can be reached at [email protected].