The daily cost of having less

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Last month, the Central Bureau of Statistics updated its “Inflation per household” report.

He confirmed that low-income people are actually facing a higher than average rate of inflation, while those with high incomes have seen a lower-than-average increase.

The report explained that in June the headline rate of inflation was 9.1% – but for low-income households it was actually 10.3%. Meanwhile, for high-income households, the rate was 8.2%.

And the reason for this discrepancy is relatively simple: if you have a lower income, the essentials take up more of your budget.

As we know, essentials like food and energy have seen the greatest increases. So if most of what you spend goes in that direction, what you pay each month, relatively speaking, is going to see a bigger increase.

Added to this is the fact that low-income households already had less disposable income after these essentials, and therefore less room to maneuver when prices rise. A wealthy person might not even notice a $20 increase in their shopping bill but, for a less wealthy person, it could leave them with nothing to spare.

But the fact that things are more expensive for the less fortunate is not a phenomenon confined to our current inflationary bubble – it is a well-established reality.

The reality is that the economy as a whole is weighted by the less well off – not just those who face poverty, but really just about everyone who is not wealthy.

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A good way to illustrate this is to imagine that you are buying a car.

Some might say it’s a luxury, others might say it’s an essential purchase – but it’s a good representation of the many ways in which those less well off are automatically at a disadvantage compared to someone who has a lot of money. money to spend.

After shopping, you opt for the cheapest model of one of the most popular cars in the country right now, which would currently cost you €36,345.

If you are very well off, you probably have access to this kind of money and are able to hand it over all at once. In which case, the car costs you €36,345.

But, of course, if you’re like the average consumer, you have to find a way to finance the purchase, which usually means going into debt.

A popular form of auto debt is the Personal Contract Plan – or PCP. This is where you put down a deposit, sometimes in the form of an old trade-in car, make monthly repayments over a term, and then face a lump sum at the end of the term in order to own the car.

The exact structure differs depending on a number of factors including the value of the car, the amount of deposit you can put down and the length of the contract, but let’s look at the typical offer offered on our car at 36,345 €.

The dealership in question offers to post a bond of around €12,700, followed by monthly repayments of €326 for three years. This represents €11,750.

At the end of that, you will face a bill of €16,355 to own the car.

If you add it all up, you’re paying a total of $40,826 for your car at $36,345, almost $4,500 more than the value of the car.

This effectively means that, if you don’t have the cash to buy the car outright, there’s a premium of over 12% added to the price.

Also keep in mind that you may not have that $12,000 or $13,000 deposit, so you may need to borrow more to get started. If you’re not well-off, that final payment of €16,355 will also be a challenge – so you may end up borrowing more to cover it or turning your current PCP contract into a new one.

All of this means more debt and more interest charges.

Of course, you can always avoid a PCP and get a loan from a bank or credit union – but based on what most providers offer, you’re still looking at somewhere between €4,000 and €5,000. interest over three years.

It might be a little less if you have a decent deposit or trade-in to keep the cost down – but either way you’ll be paying well over the value of the car.

This kind of bounty that comes with not having immediate access to cash also applies to many areas besides cars. This is the case of those who can borrow to go on vacation, undertake renovations or even buy the house itself.

How about finding a cheaper option?

The reality is that many will opt for a cheaper car – perhaps used – in order to lower the cost of ownership.

But it’s probably going to cost you more, albeit in a different way.

Even with a cheaper price, you’ll probably still need to go into debt – even if it’s less debt than before.

But the savings you make there can be lost down the road, as older or cheaper cars are generally less efficient, and therefore have higher running costs.

If they are less efficient, they may also fall into a higher tax bracket, which will also cost you more.

And of course, they’re older, so there’s a greater chance that maintenance costs will start to rise as things start to go wrong.

Is that where the downside ends?

No, because once you own your car, you have to tax it and insure it.

But if you decide to tax your car on a quarterly basis in order to spread the load, you will have to pay a premium. This could be anywhere between €12 and €302, depending on the tax bracket.

Realistically, the vast majority of mainstream cars sold today are in band A or B, so the gap is more likely to be between €12 and €36, but it still puts people who have it at a disadvantage less.

And it’s a similar story for your insurance – most car insurers offer a monthly option for your policy, but it costs more during the year.

Running a number of quotes through some vendors revealed a 5-9% premium on the cost of a monthly reimbursement rather than an annual lump sum.

That could translate to an extra $40-$60 a year for the average full policy, but it can mean hundreds more for some, especially young drivers.

After all, the higher a premium is upfront, the more likely you’ll need to break the cost down into a monthly reimbursement…but, because the premium itself is higher, the added extra cost is much higher. higher too.

Can insurance itself also put people at a disadvantage?

Yes, it is possible – in several ways.

For example, your insurer will ask where you keep your car overnight – are you parked in a locked garage, in the front yard or on the road. The answer to this will have an effect on the price they quote you.

But, of course, the less well-off are less likely to be able to live in a property that has a private garage or even a front garden.

Or maybe the actual area they live in goes against them.

Insurers rate different areas based on where they think a car is more likely to be broken into or stolen, and if you live in one of these areas, you also pay more.

Is buying cheap always a bad idea?

There’s a saying that when you buy cheap, you buy twice – because the cheap item is more likely to break after a short time, or not do the job it’s supposed to. , and you will have to pay again to replace it .

Of course, there are always good deals to be had if you’re lucky and careful – and there are some products where at least part of the premium you pay is due to clever branding – but, in general, a more expensive item will be a better investment than a cheap one.

This is true for everything from everyday purchases like clothes to one-time investments like appliances.

For example, many devices are made cheaper through the use of, for example, plastic parts rather than metal, but they tend to break easily and are often difficult or impossible to replace.

Many people may have had an experience where a mechanic told them that the cost of replacing that tiny part on their machine would actually be more than the cost of buying a new machine.

And the freebie is often the warranty offered – the cheap item will come with the standard year, but the best brand offers an extended warranty.

It’s a sign that the manufacturer stands behind its quality – they know the product is built so well that most people won’t even need that extra warranty, so offering it won’t cost them much.

Of course, many will be lucky and get a cheap device that lasted a long time for them.

But it’s not just about the risk of it breaking, there are other ways a cheaper device will cost you in the long run beyond repairs and replacements.

How?

Well, cheaper devices tend to be less efficient.

So if you have an older or cheaper washing machine, dryer or fridge-freezer – all with heating or cooling elements – chances are it will use more electricity to operate than the top model.

You may have saved €200 or more when you bought it, but in three or four years you’ve probably paid way more than that in energy costs – especially now, given the changing prices of public services.

But because many have no choice but to buy the most efficient machine and therefore have to pay too much in the long run.

Then you have to think about another kind of efficiency, which goes beyond electricity costs.

Maybe your washing machine is a lot slower – or sometimes it does a crap job and you have to rewash the clothes. It’s the time of your day when you could be doing something much better or more enjoyable.

Maybe your fridge isn’t keeping your food fresh as long as it should, costing you money at the grocery checkout.

Or maybe you have a laptop, smartphone or tablet – which is technically correct – struggles with every task because it’s just a little underpowered for your use of it.

It has a very real impact on your ability to work.

Every couple lost on the loading screen, hourglass, or spinning beach ball represents hours of wasted time over the course of a year.

Such situations can also become a great source of frustration and stress for users, which also makes it a health concern.

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