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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

Feel happier when buying a car: Your Wife or Husband will Thank You

Updated: May 10, 2021

Considering a car loan? Most people consider the numbers. We talk about the money, but also talk about how the loan may make you feel. What about your wife or husband? It’s generally a sound idea to consider their emotions, too!

In this episode, Bridget Sullivan Mermel CFP® CPA and John Scherer CFP® discuss what the research reveals about how car purchases and car loans can make you happier or more miserable.

Some people aim to be 10% happier than they are now. Learn how to wring as much happiness as you can out of your car purchase.

For more information about the research, check out: Happy Money: The Science of Happier Spending Paperback – May 20, 2014 by Elizabeth Dunn (Author), Dr Michael Norton (Author)

What No One Will Tell You About Car Loans


Bridget: Thinking about buying a car and getting a car loan? Here's what nobody will tell you.

I'm Bridget Sullivan Mermel. And I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin.

And Bridget, I think this is such a great topic of conversation. When people talk about car loans, when I talk with my clients about things, I'm really good as you are, too, right, with the math. “Here's what it looks like.” And “Here's the economics.” And it's really important, I think, to understand the economics of what does the car loan cost? And what are the options of taking money out of an investment versus taking the debt?

But one of the things that you've really taught me -- and I'm interested to hear more about this -- is the idea that it's not just the economics. There's also the psychological, emotional, and happiness factors that play into this. And why don’t you just talk a little bit about where those things come in addition to those economic factors?

Bridget: Yeah. Well, the old adage that money doesn't buy happiness is generally a questionable… It does to some degree in some situations. But one of the situations where money can buy happiness is with cars.

So people have an elevated sense of happiness generally for a year, maybe a little longer, after they buy a new car. So buying a car -- and this could be a new used car, too. It doesn't have to be a new new car. So that change of difference in looking at it and being excited about it.

Statistically, people are happy about it. I mean, not every single person is happy. So you might feel like “I'm not happy, but maybe my spouse is.” So you might know somebody who does feel happy about getting a car, at least for a while, when they get a new car. But the research shows that people do feel happier.

John: One of the things that you said there, I think, is really interesting. And it's like you're talking to me about this. For me, cars, that's just not a big thing for me. So I'm kind of surprised, like, “Oh, Yeah, I'm happy for a week, right?” And I’ve figured out how to make the thing work.

But one really important point, I think, that you brought up there is: it's not just about you. If you're in a relationship… My wife… It’s how does that person feel about the vehicle? Right? Maybe it doesn't turn me on. But, man, if it's something that gives happiness, there's value in that.

And then the other thing is when you're talking about taking out a loan versus not taking out a loan, I can look at things in one fashion, but my spouse or partner also has… we have to think about these things. And that's interesting that it's just not “I'm buying a new vehicle,” right? But it's this family thing that goes on, too.

Bridget: It’s a family thing.

John: Even though it's maybe my car, or your car, right? That's the one I'm going to drive. But we’ve got to think about how it works for both of us if you're in a relationship, that's a really great point.

Bridget: Right. The first point is there is some happiness to be had. The second point is with loans, people tend to feel bad about having loans. Consumer debt makes people feel bad and makes them less happy.

So first, credit cards make people feel worse. Student loans make people feel bad. And car loans make people feel bad. Mortgages, not quite as bad. They're not at all in the same category as the other three. So car loans give you what's called “debt drag,” so it reduces your happiness.

So you can squeeze some happiness of getting a new car, and you can squeeze more happiness out of it -- another tip -- by taking joyrides, taking ride just to enjoy the car. And you'll probably get a little less happiness out of the car if you do things like commute in bad traffic. The happiness effect gets reduced faster.

But the debt drag reduces your overall happiness. That's why people tend to feel good when they've paid off the car loan. But that's long after the happiness effect of getting a car, which lasts 1 or maybe 2 years. Usually the car loans are 3 to 5 years. So by the time you've paid off the car loan, you’re long past any kind of happiness effect of getting a car.

So I am against having car loans, mainly because it's kind of a wash financially. Usually when we work the numbers, there's kind of two sides of the story, and I don't find too compelling of issues. And so if you get a car loan, it's not going to be the worst financial decision you ever make, for sure, probably for most people.

But from a happiness standpoint, you're not optimizing your happiness with having car loans. And if you particularly feel like, “Hey, I know myself well. I don't have debt drag. Car loans don't make me feel bad.” Consider the happiness of your spouse or your family as well, and they might have a different point of view on it. So it might make them happier if you don't have a car loan.

John: Yeah, there's a couple of things I wanted to unpack there. A lot of great information. So one of the things is that taking a car loan, especially in these interest rate environments, where you see 1, 2%, 3%. It's specific to the environment that we're in. Maybe in 5 years, car loans are 8% or 9% or 10%. And then you say, “Gee, maybe there's a little different approach from an economic standpoint, right?” But now it's not that big of a deal economically. That's why I love these conversations.

And I like the numbers side of things. And you said, and this is the things that I preach, and I know that you do, too. Avoid credit card debt. Avoid car debt. But a mortgage, because your house is going to be worth more in the future, like that's okay. And I can show you the numbers on the thing. Here's that.

But it's not just the numbers. It's also this idea of “How do you feel about it?” How, in general, is your response to those things? And so much of our money life is about how we feel about it.

#1: we need to know some of the math. We talked in a previous episode about how math can be a tough thing, but you need to know some of that stuff. But then so much of it is about how you feel and react to it and how your spouse feels reacts to it. And that's the stuff that you don't get from Wall Street. This is the thing that's really impactful and meaningful for people. So I really appreciate this conversation so much.

Bridget: Yeah. And people who do happiness research and are trying to be happier think about a 10% happiness boost as a big thing. This is one of those things that if you work it right, it can help your happiness edge up. And why not? That's my two cents. So Let's wrap it up, John.

Both John and I are members of ACP or the Alliance of Comprehensive Planners, which is a not-for-profit group of fee-only financial planners, who… most of them think like we do and offer comprehensive fee-only financial planning to clients.

The other thing is to please subscribe to YouTube. It helps our credibility with YouTube and helps us show up in your feed, and helps other people find us. So with that, let's wrap it up. Thanks, John.

John: Alright, thanks, Bridget.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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