Young people aren’t paying their car loans. We can help.

0:01NPR.

0:06This is The Indicator from Planet Money. I'm Darian Woods. Sheila Bair was the chair of the FDIC during the global financial crisis. The FDIC is the government institution that protects us when banks fail. And in that role, she saw firsthand what happens when people got into too much debt. I've just seen so many people make mistakes, so many people lack basic knowledge. And there's nothing that will make a household more miserable than debt problems. So Sheila Bair decided to write a book to teach us how to think about money. And she focused specifically on young adults. I want to make sure they get off on the right start early on.

0:45Many of them don't. About 1 in 20 car loans made to young people is in serious delinquency right now. And that's a rate only exceeded in recent memory when Sheila was at the FDIC during the global financial crisis. So in her book, she has one chapter about how to think about buying a car. So we thought, what better way to help young people than a personal consultation with Sheila? And what better way to do it than with a call-in show like NPR's classic Car Talk? Hello and welcome to Car Talk on National Public Radio with us clicking like the Tablet Brothers. Yeah, car talk, but just for young people and just for buying cars.

1:26Don't go anywhere. Yeehaw!

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2:42It's Car Buying Talk from The Indicator from Planet Money. We have Sheila Baer on the line, former chair of the FDIC. Give us a call at 888-CARBUYING-TALK. That number is fake. Hello, you're on Car Buying Talk with Sheila Baer. Hi, I'm Alex or Alexander Kolev. I'm 21 years old and I live in Costa Mesa, California. So what's your car buying conundrum? Right now, I've just been biking everywhere and so far that's worked out great. But as I finish up my senior year of college, I'm starting to realize that I might need to get a car to be able to drive around and get a full-time job. And I'm worried that that price is going to kind of price me out of the current lifestyle I have.

3:27So I love your skepticism. You're right. It's really expensive to have a car, especially if you need to buy the car. You're probably looking at$600 and$700 a month just for the car payment. A lot of that depends, obviously, on how expensive in a car you buy. Then you've got the insurance, which is at least a couple hundred for a young man. I'm sorry, but young men get charged more. You've got taxes. You've got gasoline. You've got maintenance. You've got parking. It's really, really expensive to own a car. So it is something you need to think hard about. And it's also, you know, it's so much better environmentally if you just keep doing what you're doing, right?

4:05Or find a mass transit option. I don't know if that's available in your urban area. And a lot of this is just the unknowns of you haven't settled yet on a job and don't know what your commuting situation is and all that. And I would certainly advise to get that settled first before you really start thinking about seriously buying a car. Yeah, that does make a lot of sense. That's kind of what my game plan has been so far. All my other friends have cars, so it's kind of weird being the one guy without one. But like so far, it just hasn't like made a lot of economic sense for me to take the next step when it really like, like you said, it's better for the environment.

4:46It's better for me. And it works for me to bike around everywhere at the moment. Happy biking, Alex. We appreciate your call. Time for another caller. You're on Car Buying Talk with Sheila Bear. Hi, my name is Kevin Lay. I'm 23 and I'm currently living in Houston, Texas. And what's your car buying concern? I think my biggest car buying concern is the cost and the lack of inventory. Can you tell me what you do for a living? I work at one of the big four accounting firms as a tax associate. So you're probably good at math. So maybe we'll talk a little bit about math in this conversation. But let's just start with why.

5:24Do you feel that a car is necessary to further your career? Or is it more you just like a car for the convenience? It's pretty much for convenience at this point. So I've been sharing a car with my family. Yeah, yeah. Well, I think you should think hard about it because, you know, cars are expensive. Let's just talk about budget, what kind of car you can afford. What are you thinking about? What are you thinking about buying? And how are you going to finance it? I was thinking like a midsize SUV, something like a Toyota Highlander or a RAV4, anywhere between$30 ,000 to$60 ,000. I have about$20 ,000 to put on down payment.

6:01And I'd probably have to lease or borrow the rest from like a family member. Right. So that's interesting that you might have the financial wherewithal within your family to do the financing. So let me just run some numbers by you. If you had to go to conventional auto lender, let's just say, let's call it, you're going to have a$20 ,000 down payment. You want to buy a$50 ,000 car, so you're going to pay$30 ,000. The interest rate for a new car, we're talking about a new car, I assume. Is that correct? New car. So for a new car, let's just say you do a four-year loan, 6 % interest rate,$30 ,000.

6:39You're looking at easily$1 ,000 a month all in for all the different expenses you're going to suffer. A lot of people are going with used cars now. That's certainly what I recommend in my book. Have you thought about maybe buying a used car that would be less expensive than a new car? Personally, I have looked into used cars, but my parents don't want me to get a used car. I think it's kind of like a status thing for them. They don't like used cars and I don't understand it. So that's why I'm having to get a new car. The used car thing is kind of a hard no because I still live with my parents.

7:15Yeah. Well, you know, I'm a tenacious, never-say-die kind of person, so let me offer you some arguments maybe you could give to them. You've got$20 ,000 now for a down payment. I Googled SUVs, used SUVs for less than$20 ,000, and I saw some compact SUVs. One was a Suburban Subaru Forester, and another was a Hyundai Tucson, which we have actually. We're very, very happy with the car. And they were 68 years old, and they were less than$20 ,000. So you are looking, you would be able to pay cash for a used car without a loan, which would be a huge savings for you. Let's say here again, you're going to borrow.

7:55You're going to borrow from your family, hopefully favorable terms we don't know. But let's say you pay them 6 % interest. So$30 ,000 additional cost to buy a new car, plus another$4 ,000 or so of interest cost. so you're looking at$34 ,000 additional that you'll be paying for this versus buying a used car. If you took that$34 ,000 and put it in a well-invested retirement account, in 40 years, by the time you start approaching retirement, you would have, drum roll please,$738 ,633. $738 ,633. That's a lot of money. That is a lot of money. One final pitch I would make is that, boy, new cars depreciate really, really quickly.

8:43The used car will hold value much better than a new car will. So I would really encourage you to talk with them about getting a good used car for$20 ,000. You know, they want to give you$30 ,000 now, put it in your retirement account. You're going to be saving a lot of money by buying a good used car. I'll definitely try. This conversation was real short when I first had it, but me with this new information, I'd have more to back me up. Yeah, if you do taxes, you're good at math, and the math really adds up to buying a used car, for sure. Yeah, yeah. How does that sound, Kevin? Does it sound like a daunting conversation to have?

9:17I think it's going to be a challenging conversation for them as prestige, and I want to save money, but I think if I push for it, since it's my own money anyway, I could probably end up with a used car. Yeah. Well, thanks, Kevin. Good luck, Kevin. I hope everything turns out the way you want it to. I hope it does, too. Thank you all so much. Hope you enjoy the rest of your stay. Thanks again, Kevin. And thanks, Sheila Bear, for your financial wisdom. Yeah. If you want more of that wisdom, Sheila Bear's book is How Not to Lose a Million Dollars, a young person's guide to avoiding the tricks and traps of our financial system.

9:52Well, it's happened again. You've squandered another 10 minutes listening to The Indicators car buying talk. Our esteemed producer is Angel, the rare car collector Carreras. Our engineer is Travis Pro Tools Pro Hagen. Facts were checked by Sierra Truth From Above Juarez. Kate Conkernan, the barbarian, is our editor. And you better believe it, this is NPR National Public Radio.

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