Early in my career I wrote an article entitled
“Why You’re Not as Wealthy as You Should Be.” It was published in Medical Economics and later extracted for Reader’s Digest. Much of the details were later incorporated into my books. Those who have accumulated significantly less wealth than the norm for their respective age and income cohorts [income statement affluent-IAs] have much in common. And it’s not just about the fact that they live above their means.
How one spends his dollars of income is also related to wealth accumulation. Here is one example of this from the automobile market.
There is a significant correlation between where one ranks on the wealth index [WX], that is actual net worth versus the expected within one’s age and income cohort, and one’s credit score. Those in the balance sheet affluent category [BAs] have substantially higher credit scores than those in the IA category. BAs are highly concentrated in the so-called prime credit score segment. It is just the opposite for those in the IA category. They are concentrated in the subprime population.
A recent report published in Automotive News detailed the proportion of prime versus subprime buyers of new cars manufactured by the major automobile companies operating in the United States. Those new car buyers who purchased motor vehicles manufactured by Honda had the lowest proportion with subprime credit. Toyota was second.
In a previous blog, I discussed Consumer Reports‘ “table of tables.” It depicted the long term quality/endurance characteristics of motor vehicles by manufacturers over the past 10 years. And guess what? Motor vehicles manufactured by Honda and Toyota ranked at the top along what I refer to as the quality dimension. Both had significantly fewer problems especially after the 5th year of operation. By the 10th year Honda and Toyota break far from the pack. The manufacturers who had the highest concentration of buyers with subprime credit were among companies with makes having the highest incidence of mechanical problems.
By definition, IAs spend more and save less than BAs. But it also appears that IAs tend not only to live above their means but also tend to purchase automobiles that have a history of rapid depreciation and significantly more problems over time.
Makes of vehicles manufactured by Honda and Toyota have among the highest resale value in the industry. Certainly their reputation for quality/endurance is well documented.