If you’re a Baby Boomer, you probably have fond memories of your first car. Even if it was a rust bucket hand-me-down, you still had your fun, right? After you got rid of that old thing, the first time you bought a new car probably felt like a momentous achievement, one you had to photograph or document in your diary, or at least remember well enough to tell your grandchildren a good story or two.
But if you’re a Millennial, the thought of buying a new car may startle you. In fact, CarBuzz reports that the price of new cars is too high for younger Americans to apply traditional financing rules. The same way MIllennials are falling behind their parents in getting married and buying houses, Millennials are falling behind their parents in buying their first new car. The answer is largely economic. Look at when Millennials graduated from high school and college and look at what the U.S. economy was doing at the time and it’s hardly a surprise that Millennials don’t have the earning power their parents did at their age.
The 20/4/10 rule has long been a shopping guideline for new car customers. That first number, 20, stands for a down payment of at least 20%. The second number stands for four years—the longest a financing plan should last (48 months). The third number stands for 10%, as in the combined insurance and interest shouldn’t surpass 10% of the household’s gross income. Right now consumers by and large aren’t following the 20/4/10 guideline. This means that Americans are spending more than they can afford on cars.
But Americans love their cars, so what’s the solution? Spend less money on a new car. You might have to buy a more modest car than you were hoping, but that doesn’t mean don’t buy a new car at all. It means don’t buy a particular car if doing so means you can’t abide by the 20/4/10 rule. A new car is still a new car, even if it’s not the first one you set your eyes on. Some first-time buyers will try to cheat the 20/4/10 rule, but they will regret it in the long run. You shouldn’t skimp on the downpayment, you shouldn’t extend your car loan, and you shouldn’t go for a too-high insurance/interest combo. This is just basic pragmatism. You’ll still get your new car in the end, even if it’s not the car.
After all, what’s more American than the automobile? Go ahead and say apple pie, but it sure doesn’t have the same horsepower as your best friend on four wheels.