Buy a new car, make the economy happy

I want to be careful with my finances, like most reasonable 39-year-olds. But I've noticed there's not much reward in saving. One of my savings accounts pays an interest rate of 0.7%. I would like to get excited about that, but first, I have very little in the account to begin with and second, when inflation is taken into account, I'm actually losing money. Now I understand we're only talking $1.45 in monthly interest, but there's compound interest to consider!  (Thank goodness it’s a tax-free savings account.)

In our slow-growth modern economy, greater spending equals greater employment (supposedly) which equals happier people (allegedly) which equals happier economies (reportedly). Everyone can be happy so long as we keep spending. And that requires low interest rates, otherwise known as cheap money.

It's why young couples today barely bat an eye at spending $400,000 for a starter home and why university students are financing brand new vehicles while living off Kraft dinner. We are incentivized to spend what we don't have. And since saving money is so inherently hard to begin with, why not spend today instead of waiting until tomorrow? 

Such things I ponder as I consider retiring our 2007 Hyundai. I know, with only 250,000 kilometres, you'd think it could run for at least another two years. That was my thinking until it ruined our summer vacation plans.

I was once of the firm belief that you never buy a car younger than five years old or with fewer than 100,000 kilometres. That's because you get a heck of a deal on cars that have just had their warranties expire. What you pay for in repairs you more than save in new-car depreciation and monthly payments. It all works out in the end. Except when it doesn't and your wife is stranded alone on the freeway (okay, it wasn't quite a freeway and she was only alone until I biked over with our family's second mode of transport). 

But now that I sense the need for a different car, I'm starting to waver in my beliefs. I'm beginning to recognize my own human weakness – that I'm quite vulnerable to #1. Automaker advertisements suggesting a new car will make me whole and #2. My own mind's tricks suggesting a new car will make me whole (or at least 90% whole?). 

I've never been the first person to drive a shiny new car off the dealer's lot. I've also never had a car depreciate $4,000 in the first five minutes of driving. It must be both exhilarating and disconcerting, particularly for someone who minds the $1.45 in interest he earns in his savings account.  

While my in-depth analysis suggests a new car costs at least 100 more inflation-adjusted dollars per month (you can request my spreadsheet if you want), I'm still drawn to the incentives to buy new. With 0% financing and cash discounts, why wouldn't I take the leap into the abyss of new car ownership? And buy an extended 7-year warranty to boot! 

For the sake of the Canadian economy, I just might.