/// THIS WEEK
Earners,
The average new car now costs over $50,000 in the U.S. For someone in their 20s, financing that purchase with typical terms, the total six-year cost is closer to $120,000 when you include interest, insurance, maintenance, gas and depreciation.
This week, we’re discussing how car payments, a similar normal, mundane part of adult life, have been quietly keeping young people trapped under a massive debt cloud.
[ INSIGHT ]
Auto manufacturers fundamentally changed what they were selling. Modern cars are now “computers on wheels” packed with technology that did not exist a decade ago. But here’s what matters more: lenders adapted by stretching loan terms from 36-48 months to 69+ months.
This wasn’t an effort to help buyers; it was to keep monthly payments seemingly “affordable” even as total costs exploded. The system now trains people to focus on monthly payments instead of total cost. This simple shift explains why a $120,000 financial commitment over six years can feel normal to someone earning $60,000 per year. The trap is accepting a decade-long payment because the monthly number feels manageable.
/// DATA
Average new car prices rose from $30,000 to over $50,000 in the last decade. That is a 65% increase that far outpaced wage growth for people in their 20s.
Electronics now make up roughly 40% of a vehicle’s total cost, with modern cars containing 1,000+ semiconductors compared to a few hundred ten years ago.
Households earning over $150,000 now account for 43% of all new car sales, up from just 30% in 2019.
SUVs, crossovers, and trucks now make up over 75% of new vehicle sales because they generate significantly more profit per unit.
[ BREAKDOWN ]
Let’s compare two scenarios side by side. A $50,000 new car with $3,000 down, financed at 7% over 72 months, costs $858 per month. Over six years: $62,000 in loan payments ($11,000 in interest), $14,400 in insurance, $7,920 in maintenance, and $10,000 in fuel. Add $25,000 in depreciation; new cars lose roughly 50% of their value within five years. The total cost approaches $120,000.
Now let’s consider an 8-year-old Honda Civic or Toyota Corolla at $20,000. With the same down payment, financed at 7% over 48 months, the payment drops to $440 per month. Total costs over six years: $21,100 in loan payments ($2,700 in interest), $9,360 in insurance, $8,640 in maintenance, and $11,400 in fuel. Depreciation? Only about $4,000 because most of the value loss already happened before you bought it.
The payment difference alone is $418 per month. Total monthly costs: $690 for the older car versus $1,300+ for the new one. That’s a $600 monthly difference.
[ TAKEAWAY ]
Here’s where timing becomes critical. If you invest the $600 monthly difference at 8% annual rate for six years, it grows to approximately $56,500. Left untouched until retirement, that becomes $800,000+.
The impact goes beyond one number. Every large fixed payment you lock in early, whether it’s a car, an oversized apartment, or lifestyle inflation, reduces your ability to move cities for opportunities, switch careers, or invest aggressively when it matters most. Your 20s are not about deprivation; they’re about understanding tradeoffs. Transportation should solve a problem, not become one.
Once you see this, the question changes from, “Can I afford this car?” to “What am I giving up if I say yes?” In short, making strategic choices in a few key areas now allows you to be more aggressive everywhere else.
Earn more,
TCE
[ MONEY TIP OF THE WEEK ]
Track your "wealth rate" monthly. The percentage of your gross income that goes toward building net worth (retirement contributions, taxable investments, debt paydown beyond minimums, business investments). Aim for 20% minimum in your 20s. If you're below that, audit your three largest expenses and ask: "Is this purchase buying time, freedom, or compounding—or just comfort?" Comfort expires. Compounding doesn't.
To watch the featured episode, check out the video below:
