Wednesday, November 25, 2009

Spending because of Stimulus Money? Not Us.

Although we qualified for the Cash for Clunkers and the new Home Buyer's Credit program, we passed on on participating, for one of the same reasons we don't go to Black Friday sales -- if we needed it, we would have already bought it. The other reason we aren't taking advantage of these credits is that using them would cause us to take on debt or reduce our savings, neither of which we want to do. Here's our thinking on these stimulus programs.

  • Cash for Clunkers. We both drive vehicles that are 6 years old. Mine qualified for the Cash for Clunkers program because it is a truck. However, the trade in value of my truck was greater than the $4500 stimulus rebate I would receive, thus not making economic sense to participate. In addition, my truck only had 53,000 miles and the maintenance cost is only an oil change every three thousand miles, with a major tune up every 15,000 miles. Also, I was planning to drive it at least 10 years and over 100,000 miles.

    Decision: Keep the truck.

  • Home Buyer's Credit. We did not qualify for the first time home buyer's credit, since we already own a home. We do qualify for the extended program, which includes all people buying homes, under certain income restrictions. However, since we just paid off our mortgage and achieved zero debt, we are not going to buy another home. Besides, we are happy with our current home and plan to stay until our daughter goes to college, in about 13 years.

    Decision: Keep our house.
  • For us, the financial decision was easy. If we were currently looking to buy a car or house, we may have taken advantage of the tax credits. However, the new tax credits did not incentivize us to do something that we weren't already planning to do.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2009 Achievement Catalyst, LLC

    1 comment:

    Edwin said...

    These type of stimuli are similar to sales, they tend to move customer behavior forward but don't necessarily increase total demand.

    The idea during a recessionary period is to close the demand gap (potential demand - actual demand) as much as possible which they hope to do by getting people to spend now what they would probably have spent later.

    I personally also didn't take advantage of Cash for Clunkers or the home buyer's credit and I know very few people that did (although one friend did purchase a house slightly sooner because of the credit).

    This is similar to the tax rebate people received. The hope was that people would take that money and go spend it (estimates by the people in charge were that only about 20% would spend the money instead of using it to pay off debts) but most everyone used it to pay off debts (as predicted).