The Indebted Millennials Decide: Cars or Homes
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UPDATED: Feb 8, 2021
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The Millennials are burdened by record-high student loan debt, a dismal job market, and endless criticism from previous generations, not to mention inflation.
Older Americans tend to think that Generation Y is lazy and only concerned with the minute-to-minute changes found on Instagram or Vine. After all, this is the “Lazy Generation” that grew up on mandatory prize ribbons for all race contestants and education based on everyone being special.
Of course, older Americans tend to forget that inflation has drastically risen the cost of living compared to say, back in the 60s or 70s when college degrees weren’t even needed to obtain a living wage.
Now the practicality of being successful without a higher education is as long gone as the steel mills and car factories of the present-day Rust Belt.
Millennials took on college loans, spurred on by the mantra that “you need a college degree to be successful” hammered into their teenage ears. Then back in 2007, the Financial Crisis swept the globe, turning everyone in the 99 percent into either workers scared to lose their jobs, or into a nameless face in the ranks of the unemployed.
Generation Y felt the brunt of that blow and has still yet to recover thanks to the longevity and resilience that the Baby Boomers have shown with their refusal (or inability) to retire and leave the job market.
Even though Generation Y was expecting a better entry into the now globalized world, time refuses to stop ticking and a number of decisions present themselves to each Millennial.
One of these financial decisions is whether to get a car or a home, which, unfortunately for most, is a decision that means taking on additional debt for a car loan or a home loan.
Being the two largest purchases most people make in their lives, cars and homes can severely drain any consumer’s savings. For Millennials, this can practically wipe them out, financially speaking. Since time won’t stop advancing, and Millennials will only get older, they will have to decide whether a car or a home purchase is a wise financial decision, but rarely will a Millennial get to do both at once.
Homes versus Cars
To learn whether they would opt for a home or a car, in addition to their already considerable student loan debt, loans.org interviewed two members of Generation Y.
Zanade Mann is the 30-year-old small business owner of Zanade Enterprises. She borrowed roughly $45,000 in student loan debt during her studies at Pace University and CUNY College of Staten Island.
Even though she is a student loan borrower, Mann’s college-related debt has not adversely affected her business since she maintains separate bank accounts for both personal and business expenses. She also wisely consolidated her loans and has locked in her interest rates, allowing for more manageable payments.
On a more personal level though, Mann eventually faced the tough decision of whether or not to go to law school and buy a new car. Realizing that she would need to borrow an additional $100,000 in student loans on top of a car loan, she decided it was an insane decision to get into even more debt.
“Currently, with running my business I don’t think adding more debt would be an effective strategy,” she said. “However, when my student debt reaches 20k or lower I will consider purchasing a new car and home.”
Although she says her debt-to-income ratio is not that bad, she would rather take on a mortgage loan to buy a new home instead of a car loan.
As she explained in her own words, “A new car depreciates once you leave the dealership.”
Another Millennial, also 30 years old, is Bethany Moore, founder of Beatnik Betty Media and PR Consulting.
She has less than $5,000 in student loans but admits that she doesn’t have a college degree to show for it.
While she never finished her studies, she has steadily climbed in her profession but had to defer student loan payments when she became severely underemployed during the height of the Great Recession.
She plans to make larger payments on her student loans now that she is a year ahead on her payment schedule due to working full time.
Moore currently owns a Chevy Cobalt, paid for with a car loan that her parents helped her secure. However, the car is completely standard and doesn’t feature powered windows or locks in addition to it not being an automatic. She craves a new car but views her current vehicle as a necessity that commutes her from point A to point B.
As much as she desires a new car and all the features it would come with, what she truly wants is a home. She has even envisioned her own personal take on the American Dream.
“A small house tucked away in the woods, with a yard big enough for a small garden and a couple of dogs to run around,” she said. “Nice enough for me and my boyfriend to sit on the porch and enjoy the weather.”
Unfortunately, she failed to build up her credit and now she can’t get a mortgage loan to buy a home even though she makes nearly $60,000 per year. Even more frustrating is the fact that her monthly rent at her apartment complex is higher than some mortgages. She pays almost $1,000 a month for a two bedroom apartment with no amenities. Her situation even prompted her to seek treatment for depression.
Together with her boyfriend, they plan on building up a down payment for a home over the next three years while trying to boost their credit scores. She foresees herself owning a home in a woodsy suburban area that is close enough to a city for work, yet far enough away that she can enjoy some peace and quiet.
She would choose a home over a car since she sees it as a practical and solid investment, but given her tentative job situation, getting a home loan would be difficult at best.
“A mortgage is often a 20 or 30 year commitment,” she said. “Right now, I’m a contractor and consultant full-time, but my contract could end this year. Then I’ll have to find another job. If that’s the case, how can I feel secure enough to try to convince a bank to loan me hundreds of thousands of dollars? I don’t want to risk missing any payments.”
Why the Indebted Picked Homes
While the interviewed Millennials clearly want the picturesque home of the American Dream, that doesn’t mean that their decision was simple or easy to make. After all, there are various factors that determine whether someone under a burden of debt would opt for a home over a car.
Andrew Wilson, Regional Sales Manager for Merrill Edge, told loans.org that the decision to borrow money for a car or a house will differ depending on an individual’s financial situation and lifestyle.
Even before considering either purchase, Wilson advises indebted consumers to make sure that they are current on all debts and are in feasible repayment plans.
However, even if everything seems financially planned and prepared, opting for a car, as Mann feared, can be a cause for concern.
“Once the car is driven off the lot, the value significantly decreases,” said Wilson. “However, if you drive frequently for work or travel and intend to for a period of time, taking out a loan to purchase a car may be beneficial in the long term compared to alternative transportation methods.”
As simplistic as it may sound, the need for a house versus a car depends entirely on an individual’s lifestyle and financial capabilities since those that commute may often favor a vehicle while those that work from home or nearby may prefer an actual house over an apartment.
“On the other hand, buying a home can be a very worthwhile investment depending on the housing market at the time of purchase,” said Wilson. “Renters, especially those in a city where the cost of living is higher, may find that they are able to save more money in the long term by taking out a loan to purchase a home outside of the city.”
In the end though, Wilson said that the wisest financial decision is to make a plan to tackle all current and future debt. This can end up being wiser than making the decision to purchase a home, which Millennials have overwhelmingly backed, over cars. As Wilson pointed out, Merrill Edge found that 44 percent of respondents to a report had outstanding mortgage debt compared to just 25 percent having outstanding car loan debt. The American Dream is expensive indeed, yet new wheels lose value by the day. Choose wisely.