Ignorance is Scary

[Sue J]

There's one in every family.

Mine is my 32 year old nephew, my sister's son. When my Dad gave up driving in 2012 he gave his 2001 Honda Civic to my nephew, who needed a car. The nephew works as a grocery store checker and bagger, making maybe $16,000/year after taxes. He does fine on that as he is single and lives simply.

Last Sept. he took his car in to the dealer for some brake work. The car had 60,000 miles on it and this dealer knew this car's entire history since that's where my Dad did all of his maintenance.

The dealer's service guy told my nephew that the car needed major work, at least $2500 worth. Instead of repairing it he could get $2500 in trade in and put that down on a lease on a new Civic. The payments would only be $200/mo for 3 years.

So my nephew decided that he had to have a new car, it wasn't worth fixing the old one and he'd like to do the lease. Now, his income doesn't get him very far with the financing so he needed a co-signer. My sister's husband (nephew's step-dad) agreed to co-sign the lease.

So now this 32 year old, making $16,000 in take-home pay is driving a new, $20,000 car. The $200/mo stretches him to the edges of his budget and leaves him no breathing room. Or the ability to save anything for when this lease ends in 3 years and he has to turn in the car.

My sister is explaining all this to me, like it's great news and I said, "A lease is the most expensive way to drive a car. There are a lot of cars out there between a 2001 Civic and $20,000 2014 Civic. Why is he leasing a new car?" Her answer, "Oh, you have to have the new technology! It's got a back-up camera and GPS. He works hard and deserves to drive new instead of used."

The sad part about this is that I saw the car posted for sale at the dealer's site. They were asking $7000.

What's going to happen in 3 years when the lease is up? He'll turn in the car, get another new one and just keep making payments, forever. That's what sophisticated people do in their world. Everybody has a car payment, you have to have the newest technology, you deserve to drive a new car!

[timwalsh300]

I wonder if it's not ignorance, but rather self-delusion. People just want the shiny new car or truck. They know the salesman is deluding them with talk of trade-in values and monthly payments, but they are thankful because he provides a way for them to justify the purchase to themselves and others. They can repeat all the details, sounding sophisticated, without ever having to face the true cost.

[aja8888]

Quote:

Originally Posted by Sue J There's one in every family. Mine is my 32 year old nephew, my sister's son. When my Dad gave up driving in 2012 he gave his 2001 Honda Civic to my nephew, who needed a car. The nephew works as a grocery store checker and bagger, making maybe $16,000/year after taxes. He does fine on that as he is single and lives simply. Last Sept. he took his car in to the dealer for some brake work. The car had 60,000 miles on it and this dealer knew this car's entire history since that's where my Dad did all of his maintenance. The dealer's service guy told my nephew that the car needed major work, at least $2500 worth. Instead of repairing it he could get $2500 in trade in and put that down on a lease on a new Civic. The payments would only be $200/mo for 3 years. So my nephew decided that he had to have a new car, it wasn't worth fixing the old one and he'd like to do the lease. Now, his income doesn't get him very far with the financing so he needed a co-signer. My sister's husband (nephew's step-dad) agreed to co-sign the lease. So now this 32 year old, making $16,000 in take-home pay is driving a new, $20,000 car. The $200/mo stretches him to the edges of his budget and leaves him no breathing room. Or the ability to save anything for when this lease ends in 3 years and he has to turn in the car. My sister is explaining all this to me, like it's great news and I said, "A lease is the most expensive way to drive a car. There are a lot of cars out there between a 2001 Civic and $20,000 2014 Civic. Why is he leasing a new car?" Her answer, "Oh, you have to have the new technology! It's got a back-up camera and GPS. He works hard and deserves to drive new instead of used." The sad part about this is that I saw the car posted for sale at the dealer's site. They were asking $7000. What's going to happen in 3 years when the lease is up? He'll turn in the car, get another new one and just keep making payments, forever. That's what sophisticated people do in their world. Everybody has a car payment, you have to have the newest technology, you deserve to drive a new car!

$2500 ESTIMATED repairs to a 13 year old car is an old trick by the dealers to unsophisticated owners (I've seen it happen: 1999 Saturn, 100K miles, Est maintenance $4,000).

Sure hope he doesn't go over the mileage limit on the lease and that it's in "new" condition when turned in or he will be in for additional costs.

[Rick_Head]

Quote:

Originally Posted by pb4uski Math is hard.

Math is easy, arithmetic is hard.

[Sue J]

Quote:

Originally Posted by aja8888 $2500 ESTIMATED repairs to a 13 year old car is an old trick by the dealers to unsophisticated owners (I've seen it happen: 1999 Saturn, 100K miles, Est maintenance $4,000). Sure hope he doesn't go over the mileage limit on the lease and that it's in "new" condition when turned in or he will be in for additional costs.

Yep, this 32 year old is very innocent and immature. I'm thinking the minute he showed up he was an easy mark to even an amateur car salesman. I know car dealers are there to sell cars, but this is the last person who should be driving a leased, new car. I doubt he will come close to the mileage limit. He has a short commute to work and can't afford to go anywhere else.

I'm also surprised that my BIL co-signed for him. I hope he realizes that HE is now leasing a car and if his step-son is late on a payment that HE is late on a payment.

He had a decent used car with very low mileage for it's age. It just needed periodic maintenance and an occasional repair. If you can't afford to maintain what you already own you shouldn't be leasing a new vehicle.

[Rustward]

Sometimes lack of basic skills can be scary, too. This is going to sound like I made it up but it is true.

Recent visitors arrived at the house using directions from Mapquest.

Enter town on U.S. Highway. Turn right on the "loop".
Go a couple of miles on the loop and turn right onto the interstate.
Go five miles on the interstate to a major state tollway (like an interstate).
Go five miles on the tollway and exit to two lane county road.
Go one mile on the county road, turn left, and we are the second house.

Pretty easy -- daytime, light traffic, good weather.

Now the plan was to leave here to go to their niece's house elsewhere in town, then go home from there.

Some event caused them to cancel the niece visit and just go home from here.

He was prepping the car as I saw her at the kitchen table shuffling a small stack of mapquest maps and directions while shaking her head from side to side.

I now suspect he knew what was happening and decided to remove himself from it because he is the cause of everything that has ever gone wrong. Once on a cross country road trip they had to stop to replace their six year old battery that failed because he turned on the radio.

I say "What seems to be the problem?"
"I need directions." Me: "?"
"Well, I have directions to here, and I have directions from here to my niece's house, and I have directions from my niece's house to home . . . but I don't have directions from here to home."

I innocently said "Just use the directions and map you used to get here. Why can't you do that?"
"Because all the turns are backwards, uh, and . . . Oh, it just won't work." Another headshake.
I should have taken this seriously but I thought she was joking. "You're kidding, right?"
"No, I'm not kidding".

Three minutes later I handed her the needed Mapquest directions and all was good with the world!

[Mulligan]

Quote:

Originally Posted by mystang52 The stupidity naivete of so many consumers regarding an item's cost is amazing, frustrating to us LBYM'ers, and when it involves friends/family can be depressing. I have a couple of friends who make very good incomes, yet barely get by paycheck to paycheck. They often talk about cost of a purchase in terms of X dollars per month vs its actual cost. One of them is thrilled that something was on sale, yet doesn't get it that paying 18% credit card interest isn't exactly a good "sale item." Like TromboneAl, I stay mum.

Don't worry Mystang, you did the right thing. Two of my best friends are like that and I would preach all the time to them. All it accomplished was them going underground and not bringing the stuff up to me anymore....


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[Choices]

Quote:

Originally Posted by bjorn2bwild My SIL(62) is a millionaire in Iraqi Dinar. She went so far as to make an appointment with a financial advisor in preparation for the inevitable revaluation. After informing DW that she would need to borrow some money for airfare to Atlanta in order to buy more dinar, I sent her a few links including one to ebay where she could buy all she wanted at the same price...... crickets.

We must be related! We also have Dinar millionaires in the family. They have been known to call us AT WORK to tell us the revalue was coming in a couple of days and to buy all we could. We still don't own any but somehow will manage to comfortably retire soon.

Then there was the flight lessons in prep to buy a plane and leae it out, two new high end cars, etc all to be pd for with the Dinar proceeds.

I am glad these folks are outlaws and not on my side of the family. They sure don't want to hear about spending less than you make and of course, they do not trust the market. C'est las vie!

[papadad111]

Quote:

Originally Posted by timwalsh300 I wonder if it's not ignorance, but rather self-delusion. People just want the shiny new car or truck. They know the salesman is deluding them with talk of trade-in values and monthly payments, but they are thankful because he provides a way for them to justify the purchase to themselves and others. They can repeat all the details, sounding sophisticated, without ever having to face the true cost.

Nope. I'm pretty convinced it's just plain ignorance. Stupid is as stupid does.

Want to have some fun? Challenge the cashier by changing the amount of cash tendered after they hit the buttons and the till opens. (Lights dim..smoke out of their ears). Sad but true.

+1. Sadly we will be footing their bill and covering their bad credit some day. Eventually the rooster comes home to roost.

[2B]

Most of the stories here is why Dave Ramsey does so well. Most of us here consider his advice / program remedial at best with very negative opinions of his investment statements (12%/yr and the high cost ELPs). Unfortunately, most of the rest of the population are still struggling to understand "Debt is Dumb." This is the basic message of his program with an actual way to get out of debt. I have personally sent many people in the kind of situation described in this thread to his Financial Peace classes.

I've read a couple of his books and occasionally listen to his radio show. I've never taken Financial Peace but the last time I had any debt other than a mortgage was in 1976 when newly wed DW showed me her car note. She watched me write a check to pay it off and I said we don't do car loans. She seemed surprised people didn't all have car notes. Fortunately, DW adapted very well to my tight-fisted approach. Her twin sister hasn't fared so well with a big spending husband. They have had a series of much nicer cars and expensive toys. We have a well (over) funded retirement.

[travelover]

Quote:

Originally Posted by Sue J ..............If you can't afford to maintain what you already own you shouldn't be leasing a new vehicle.

Yea, but lease payments are so.........predictable! How is any person supposed to come up with, like, $1000, just like that?

[harley]

Quote:

Originally Posted by papadad111 Nope. I'm pretty convinced it's just plain ignorance. Stupid is as stupid does.

Just a point. Ignorance is not the same as stupidity. Ignorance is easily cured with education/information. You can't fix stupid. Probably a few of the people in these stories are merely ignorant and would change their behavior if they understood what they were doing to themselves. But I suspect most of them wouldn't.

[Mulligan]

Quote:

Originally Posted by harley Just a point. Ignorance is not the same as stupidity. Ignorance is easily cured with education/information. You can't fix stupid. Probably a few of the people in these stories are merely ignorant and would change their behavior if they understood what they were doing to themselves. But I suspect most of them wouldn't.

That is the position my free wheeling spender friends are in. The eternal struggle of long term goals versus immediate gratification. They recognize the problem and will try in short spurts, but always succumb back to their prior ways.


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[timo2]

Quote:

Originally Posted by Bryan Barnfellow I was in a Macy's department store a few years back and overheard two women in their twenties talking about some clothes that were on sale. They spent about 10 minutes trying desperately (and not succeeding) to figure out how much a sweater would cost that was on sale for 15% off the $50 original price. It was one of those funny/sad moments. -BB

There's an app for that.

[timo2]

Quote:

Originally Posted by timwalsh300 I wonder if it's not ignorance, but rather self-delusion. People just want the shiny new car or truck. They know the salesman is deluding them with talk of trade-in values and monthly payments, but they are thankful because he provides a way for them to justify the purchase to themselves and others. They can repeat all the details, sounding sophisticated, without ever having to face the true cost.

That's my BIL, self-deluded. All the stories on this thread about buying unnecessary new vehicles applies to him. I get to tease DW about his retirement plan is to come live with us. That always gets a rise out of her!!

[Bryan Barnfellow]

Quote:

Originally Posted by 2B Most of the stories here is why Dave Ramsey does so well. Most of us here consider his advice / program remedial at best with very negative opinions of his investment statements (12%/yr and the high cost ELPs). Unfortunately, most of the rest of the population are still struggling to understand "Debt is Dumb." This is the basic message of his program with an actual way to get out of debt. I have personally sent many people in the kind of situation described in this thread to his Financial Peace classes. I've read a couple of his books and occasionally listen to his radio show. I've never taken Financial Peace but the last time I had any debt other than a mortgage was in 1976 when newly wed DW showed me her car note. She watched me write a check to pay it off and I said we don't do car loans. She seemed surprised people didn't all have car notes. Fortunately, DW adapted very well to my tight-fisted approach. Her twin sister hasn't fared so well with a big spending husband. They have had a series of much nicer cars and expensive toys. We have a well (over) funded retirement.

The good thing about buying a car with a loan is that you can usually get a better price from the salesperson, who figures to make up some profit from initiating the loan for the bank. I used to negotiate the price, making sure to say several times that I needed a good price to keep the monthly payments low. Then, as soon as the bank sent me their coupon book and intro letter, I sent back the first coupon paying off the loan in its entirety. Of course this only works if you pay off the loan!

-BB

[Bryan Barnfellow]

As I read our posts, I am drawn to thinking that for a large segment of people, a new car is a (seemingly affordable) symbol of some measure of financial success in life that is readily communicated and understood by most others. So, perhaps the cost of the car includes this bit of ego massage and many people are willing to pay for it (whether they understand what is going on or not).

-BB

[calmloki]

I'm very much of the delayed gratification camp and watching the actions of a time payment sibling used to make me crazy. Then I started repeating the mantra; "lots of ways to live a life".

My sib has been to Europe, had many new cars, buys lots of new clothes and all sorts of the latest things. If a new snack food is advertised on tv I can call and find out what her impressions were when she had it last week. I've never been to Europe or had a new car and rarely am swayed to buy an advertised goody. If I wanted those things I could pay cash with no effect on our lifestyle or future. Instead I have a bunch of numbers on a computer screen to look at. woohoo?

She continues to work, but also has a pension that she can count on. I don't think of myself as working, but have no pension (or IRA or Roth). I can count on only me to fund my future and aged self.

Her lifestyle is different than mine and not what I choose, but hey - lots of ways to live a life.

[2B]

Quote:

Originally Posted by Bryan Barnfellow The good thing about buying a car with a loan is that you can usually get a better price from the salesperson, who figures to make up some profit from initiating the loan for the bank. I used to negotiate the price, making sure to say several times that I needed a good price to keep the monthly payments low. Then, as soon as the bank sent me their coupon book and intro letter, I sent back the first coupon paying off the loan in its entirety. Of course this only works if you pay off the loan! -BB

I typically get the "credit union price" for the vehicle. It's a standard $X over dealer invoice. Financing is totally separate. Many vehicles ago I would shop other dealers and negotiate aggressively using various approaches. I could never beat the original offer. No loan involved.

[38Chevy454]

Quote:

Originally Posted by Bryan Barnfellow I was in a Macy's department store a few years back and overheard two women in their twenties talking about some clothes that were on sale. They spent about 10 minutes trying desperately (and not succeeding) to figure out how much a sweater would cost that was on sale for 15% off the $50 original price. It was one of those funny/sad moments. -BB

That's because 5 out of 4 people have trouble with fractions!

Back to OP, it is pretty amazing how ignorant people are about basic financial matters. I work with many highly educated (BS, MS, PhD) people and it blows me away how they do not have any knowledge of personal finance. I do think they are also caught up in "keeping up with the Jones's" mindset.