A couple of years ago I traded in my 2000 Dodge Neon for a 1988 BMW 325i Convertible that "needed work." The salesman was dumbfounded as to why I would trade in a 2000 for a 15 year old car. I told him I no longer intended to make car payments. He understood. Let's make this point clear, the car dealer is not your friend he or she knows that by telling the customer that it is "only" such and such a month, the customer is unlikely to do the math and see that the auto they purchased will cost them x thousands per year not to mention upkeep and insurance. What is worse is that the payment is fixed and the owner runs the risk of having thier car towed (resulting in a possible inability to get to work). people who lease tend to think of avoiding the mechanic but in that case end up paying some car dealership for the rest of thier lives for a new vehicle. With my '88 BMW (a vehicle which happens to retain quite a bit of value even for it's elevated mileage) I was able to instantly put my car note payment back into my pocket. That was 3000 a year. Of that I was able to put a part of that into investment vehicles. I did have to make a number of "costly" repairs though. And the only thing costly about them was that they were expensive at the time but in the long run came out to less than my car note would have been for the same duration of time AND I had a car I enjoyed more AND i never, ever had to worry about the repo man or my credit getting squashed because of slow payments in "bad times." But this post isn't about my car. What this post is about is the fact that I was reducing my debt and increasing my assets..basically taking care of my net worth. Today I'm the wrong person to try to sell to. If I don't see how it can benefit me I wont' buy it. I manage debt to the extent that I don't pay more than 4% interest on my credit cards, yes CARD(S). and I live by the motto that only the poor and lazy pay high interest. Why do I say that:
The poor are screwed by the system which is built to make those with the least access to capital pay the highest interest while those with the easiest access to capital pay the least interest. Supposedly that's because those with access to capital can negotiate whereas the poor cannot. The Lazy are those that don't attempt to get a better deal for their debt. They pay 19% because they think they have to and don't take advantage of the offers that come thier way. I used to be in both categories and the number one thing I did to get out of those categories was to get off the car note. Black America has had a long love affair with cars. It is said that the reason for this is that black men under such presure from racism could only "shine" in thier cars. Either way, Black America has been killing itself keeping up with "jones." In any 'hood" you can find the latest model foreign vehicles even when the owner lives in his mother's basement. Thes $20,000 and up SUV's and BMW's are killing them with interest that takes out $30-50,000 out of thier pockets every 5 to 7 years. And amny of these individuals will purchase another vehicle once that one get's old. Now someone will say "white folks do that too."
A) I don't care, I'm not talking about them
B) White folks are on average better financially equiped to do that dumb stuff.
How can I claim my second point? The New York Times covered reports from various Washington rearch groups that showed that blacks have had a 16% net reduction in net worth between 1996 and 2002.
White households had a median net worth of greater than $88,000 in 2002, 11 times that of Hispanic households and more than 14 times that of black households, the Pew Hispanic Center said in the study, being released Monday.
After accounting for inflation, net worth increased 17 percent for white households from 1996 to 2002 and 14 percent for Hispanic homes, to about $7,900. It fell for black households by 16 percent, to roughly $6,000.
The median net worth for all American households, representing all races and ethnicities, was $59,700 in 2002, a 12 percent gain from 1996.
Only white homes recouped all their losses from 2001 to 2002. Both Hispanics and blacks lost nearly 27 percent of net worth from 1999 to 2001; the next year Hispanics gained it almost all back (26 percent), while blacks were up only about 5 percent.
Mr. Harrison said Hispanics were more insulated from the downturn than blacks, so they suffered less. For example, Hispanics made employment gains in lower-paid, lower-skilled areas like service and construction.
Blacks were hit hard by job losses in the manufacturing industry and in professional fields, where they were victims of "last hired, first fired" policies, he said.
Now My problem with the last sentance here is that though I'm sure "last hired" issues are real ( I can attest to that myself), From some of the things I've seen in Black Enterprise, I'm not convinced we can explain away the loss in net worth of Blacks to just employment discrimination, especially for the middle class. Each time I've looked at the BE "financial picture" of some family I consistently note that mosty of the persons have HUGE auto debt. I mean househoulds with 2 SUV's (and not the small ones). And BE doesn't tell them to get rid of the vehicle, it tells them to cut up credit cards. NO!! Sell the vehicle forthwith take that money and purchase a decent (well running) used car and put the rest of the savings into investments. People invest upwards of $30,000 every 5 years into their cars when they could invest that same money into a good portfolio.
My point is, I believe that a large portion of the problem with black net worth comes down to our embrace of consumerism when we should be saving and investing.