Essay about Why Cars Are Essential in Today's World

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Beyond the Monthly Payment – Student Activity

|Name |Beyond the Monthly Payment – SA1000A2 |
|Prerequisites |Lesson 1 – Automobile Basics |
|Estimated Time |1 to 1½ hours |
|Activity Resources |Vehicle Expenses Worksheet |
|Objectives |Clarify and reinforce the fact that the total cost of owning and operating a vehicle |
| |includes more than the monthly payment |
| |Introduce the students to the fixed and variable costs of owning and operating a vehicle |
| |Give the students practice at estimating how much their fixed and variable costs will be |
| |annually |

In the United States, we love our vehicles and rightly so because we are a very fluid society. About 220 million Americans spend 1 to 2 hours each day in their vehicles. A recent Gallup poll indicates that 85% of workers drive to work by themselves, 6% ride with another person, 3% walk, 4% take public transportation and 2% do something else to get to work. The average drive to work is 16 miles and takes about 26 minutes each way. These statistics seem to support the idea held by many that a car is an essential part of being able to function in our society.

The biggest mistake first time vehicle owners make is concentrating on getting the loan and being able to make the monthly payments but neglecting the other costs associated owning the vehicle. Trust me, there are other costs associated with owning and operating a vehicle and many times they can equal or exceed the monthly payment amount.

There are two types of expenses related to automobile use – Variable Costs (also called Operating Costs) and Fixed Costs (also called Ownership Costs). Variable Costs are named as such since they vary depending on how much you use your vehicle. The more you drive, the more often you have to get new tires, buy gasoline, change your oil and have the vehicle serviced. Fixed Costs can also change, but they do not typically change based on how much you use the vehicle. Fixed costs include items such as auto insurance, vehicle tags and monthly payments, but for this activity, fixed costs will not include the monthly payment.

1. List all Fixed and Variable Costs you can think of that are associated with having a car. Feel free to discuss this with your parents, older siblings or other adult friends as most of them will have experienced both fixed and variable vehicle costs.

Despite the name, Fixed Costs are not the same from person to person or vehicle to vehicle. They are fixed for a given car and owner as long as nothing related to their calculations changes. For example, your monthly payment won’t go up or down, but if you’re involved in an accident, your insurance costs may go up and insurance is typically one of the largest fixed costs for young people.

You can control some of your Fixed Costs by choosing what types and levels of insurance you carry on the vehicle. Most lenders will require you to have collision insurance because the vehicle is the collateral for the loan and the lender wants to protect their investment in your vehicle. Most states require Bodily Injury and Property Damage liability insurance for all vehicles. Some may require you to have comprehensive coverage as well. Increasing the deductible amount for your insurance will lower your fixed costs, but can also increase them if you have an accident because you will have to
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