There’s common debate in the financial independence community about what will happen as more and more people adopt a frugal lifestyle.
Turning consumers into minimalists is bad for the economy. If people stop spending money on trinkets then all the trinket makers will go out of business. The employees of Trinket, Inc. will lose their jobs and not have money to buy things of their own, causing the makers of whizbangs and who-dads to also close down. A massive shift to a minimalist population would cause a systemic shrinking of our economy.
Would that be a bad thing? I really couldn’t say. Our “economy” is one propped by debt-fueled spending. It’s the hysteria around growth and consumer spending that creates the present opportunities for savers. If you don’t participate, or rather if you choose to be an owner of Trinket, Inc. rather than a patron, you can come out way ahead.
A growing number of articles in my news feed pertain to early retirement and financial independence – word is spreading. There are roughly a billion blogs on the topic and everyone has a story about how to live free and blah blah blah. Minimalism has gone from fringe idea to soup de jour. Even Vicki Robin saw the tide shifting and scrambled to bolster book sales to the newly enlightened.
It used to be a rare thing to encounter a friend who’d heard of Mr Money Mustache, but now triple M has been featured on so many mainstream finance sites it’s old news. Anyone dipping their toe in the FIRE world can find examples and inspiration everywhere.
It’s tempting to see the growing community and think revolution is afoot.
Evidence That Nothing is Changing
The Ford Example
Ford Motor Company announced they are discontinuing all but two of their car models in favor of trucks and SUVs. One of the cars they are keeping is the Ford Mustang and the other will be a new Ford Focus with the styling of an SUV.
The move is based on consumers insatiable appetite to drive expensive budget-wrecking behemoths. In 2017 trucks and SUVs made up 2/3 of all auto sales in the U.S. For the month of December, the average new vehicle purchase reached $36,495 – an all-time high. The sky-rocketing average is owed to the higher mix of trucks and SUVs.
Ford’s move to ax the small car in favor of high-profit trucks just makes good business sense – give the consumer what they want. Which is a little ironic considering the Focus and Fusion were introduced just a decade ago to meet the consumer’s desire for smaller more fuel efficient cars.
Ten years ago we were in the midst of the recession and gas prices were at record highs. The response by people everywhere was to pare spending and live a little more minimally, at least as it pertains to vehicle size. How quickly we forget!
A decade later all lessons are lost. The recession didn’t cause a monumental shift in consumer mindset, it merely delayed the spending barrage a few years. Now we’re back to our old ways.
How Ridiculous are Car Buyers?
Looking back at the December 2017 sales data… The report is comparing January to December, and January auto sales fell relative to December sales. The reason? Less 3 day weekends and colder weather. I’m sorry, the decision to spend $36,000 hinders on a 5 degree change in temperature!?
The average auto loan term on new vehicles is now 69 months. As people shift to buying more expensive trucks and SUVs, banks offer longer terms to “help” people afford vehicles they otherwise couldn’t. It’s now common to finance vehicles for 72 or even 84 months. That’s 7 years! 31% of all new car loans have payoff terms longer than 6 years. You’re killing me guys.
Not surprisingly, severe delinquencies on payments are way up. About 4% of people are more than 90 days late on their car payment. That’s double pre-recession levels.
What Does this Have to Do with FIRE?
I think sometimes we live a little too much in our bubbles. One of the “features” of smart technology is that it learns our behavior and delivers tailored content to our news feeds, side bar ads, emails, and whatever else. When an early retirement story gets a lot of engagement on CNN Money, they’re likely to run another. If CNN Money is a news source of yours, you’ll start seeing more and more articles and think the tide is turning.
It will serve us to zoom out a little. For every person getting targeted Frugalwoods book ads there are 100 more seeing ads for F-150s at only $500 a month! (for 84 months).
I think the state of the auto market is a good barometer for the penetration of FIRE. When frugalizing your life you start at the top, the big-hitters, housing and cars. Spending on housing is a bit more nuanced in the framework of FIRE.
Cars however, are straightforward. Expensive passenger vehicles are a luxury. No doubt about it. There are so many options for cheap transportation (buses, trains, biking, used economy cars) that anything beyond is an active prioritization of a depreciable consumer good over long-term financial health.
The state of auto spending is sending a clear message, your homestead is cute frugalwoods, but my truck is badass!