My working life began at age 14 as a bagger for a local grocery store. The year was 2008, and although the stock market was in freefall, I paid little attention. Like most teenagers, the only financial goal that I could fathom was saving enough to buy a car. Two years later I achieved that aim when I bought a used 2002 Honda Accord for $7,000. I had finally achieved the means to freedom that the adolescents of suburbia crave, and was proud of it. Not many teenagers buy their own car with money that they earned.

Although I relished my five enjoyable years with the Accord before its transmission failed, today I cannot help but think about the path that I did not take with that $7,000 – that is, the opportunity cost. What would have happened if I had instead invested my earnings from age 14-19 in a stock market index fund?

To estimate a ballpark figure, I assume that I would have accumulated about $7,000 in savings between 2008 and 2010 and $3,000 a year thereafter until 2013. To simplify things a bit, I also assume that I would have bought into the index fund once every six months with the savings that I had at that point. The results, frankly, are a bit distressing to think about.

car cost

As it turns out, the path untaken would have left me with a portfolio worth about $32,000 today. The car alone actually cost about $17,000 when you factor in these opportunity costs, not to mention the maintenance and fuel costs. Then there is the savings that I just left sitting in a bank account, earning virtually zero interest for several years while stocks were dirt cheap. At a 7 percent compounded annual growth rate, my teenage earnings would have swelled to over $100,000 by age 40 and $500,000 by retirement age. If I did just a little better – say, 9 percent – I could have turned $16,000 into over $1 million by age 65.

That Honda wasn’t very cheap, after all.

Over the years I told myself that the car was necessary, but did I really need it? Probably not. It would have been pretty inconvenient, but I know plenty of people my age who have never owned a car. Somehow they all survived. I could have easily continued biking to work at the grocery store and carpooling to school. Visiting friends in other towns would have been tough, but I am sure we would have figured it out. Realistically, I only really needed a car beginning in 2015, when I started commuting to a summer job at a suburban office.

The harsh truth is that spending a lot of money on a car might be the single greatest barrier to building wealth for most ordinary young people. Besides the considerable financial costs, there are also the hidden opportunity costs that compound over many years. Ostentatious cars are particularly deleterious to future affluence. In his book Stop Acting Rich: And Start Living Like A Real Millionaire, Thomas Stanley writes that 86 percent of luxury vehicles are sold to non-millionaires. These are people who choose the trappings of wealth over actually being wealthy.

So all things considered, would I have chosen differently? I really cannot say. I have many good memories with the Honda, and there is no point in regretting because I did not have the knowledge about investing then that I do now. But now that you have read my story, hopefully the young people in your life will think twice about this important life decision.

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