Talk to economists and you'll find a lot of debate about the minimum wage. Supporters say that by ensuring a certain level of income for American workers, the minimum wage increases the standard of living, stimulates consumption and motivates workers. Critics say that a minimum wage — or, more aptly, the higher labor costs associated with it — hurts America's competitiveness in the global marketplace. The one thing that nobody seems to debate is that trying to live on minimum wage in America sucks. In fact, the only thing worse than the minimum wage is no wage at all.
So what does all of this financial talk have to do with cars? Recently, the editors at MSN Autos debated whether someone could afford an automobile on a minimum-wage income. Unfortunately, the discussion raised still more questions. So we decided to find a definitive answer.
Can someone afford an automobile on minimum wage?
Understanding the Minimum Wage
We discovered good news and bad news. The good news is that people at the lowest income levels are driving better cars than they used to, says James Sullivan, a University of Notre Dame labor economist specializing in consumption habits of the poor. The bad news is that trying to afford and maintain any car at that income level is a soul-sucking exercise in thrift.
Why is that? Let's start by attempting to wrap our heads around the idea of a minimum wage, which is more complicated than you might think. That's because, as it turns out, there is no single minimum wage. There is a federal minimum wage, which was last updated in 2009 to $7.25 per hour. But there is also a variety of state laws regarding minimum wage. Some states, such as Louisiana and Tennessee, have no laws defining the minimum wage, which essentially means the federal minimum wage applies. Some states, such as Minnesota and Georgia, have minimum wages that are lower than that of the federal government, which still means that most employees get the federal minimum wage. Many states have a minimum wage that is pegged to the federal minimum wage. And then there are states such as Connecticut and California, which have minimum wages higher than what is federally required. The highest minimum wage is in Washington state, where residents are guaranteed $9.04 per hour since January of 2012.
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Crunching the Numbers
So let's start with the best-case scenario and say that you live in Washington state — MSN Autos' home base — and you earn $9.04 per hour. And let's say that you have a full-time job working 40 hours a week for 52 weeks a year, which would make you a statistical rarity. (Let's ignore, for the moment, things such as health care that could take an instant bite out of that paycheck; that's a political can of worms for another article.) Such employment would give you a base salary of $18,803 per year.
Obviously, that doesn't mean you can spend the full amount on a vehicle. To get some real-world numbers, we spoke with John Abowd, director of the Labor Dynamics Institute at the Cornell University Department of Economics, who pointed to the federal government's Bureau of Labor Statistics' Consumer Expenditure Survey. This insanely detailed document examines how much people spend in a year on all kinds of goods and services and breaks down the data by income bracket. A yearly income of $18,803 puts you in the bottom third of income distribution, and for a single person that's only $7,913 above the poverty level of $10,890, a figure from the 2011 US Department of Health and Human Services poverty guidelines.
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Economists warn that the statistics in the survey can get a little wacky, since they are household averages that can be skewed by all sorts of behaviors. Even so, they are good for drawing broad conclusions. According to the survey, transportation is the third-biggest yearly expense for poor people, behind housing and food, costing the bottom 20 percent in America 13.7 percent of their income, or $2,868 per year. That's $239 a month to cover the cost of a car, insurance, gasoline, maintenance and any finance charges involved with the purchase or lease of the vehicle.
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What Kind of Car Can You Afford?
The data show that a small portion of low-income drivers are managing to buy new cars, but that the vast majority is shopping the used-car market -— and that's not a bad thing. Driving a car that's five to 10 years old used to be a reliability and safety nightmare, and older cars offered few creature comforts. But as Notre Dame's Sullivan points out, poor people now own much better cars than they used to. The cars likely have safety systems such as airbags and antilock brakes and, according to J.D. Power and Associates, are quite reliable.
So let's take a look at five vehicles you can get for less than $239 a month.
View Slideshow: Affordable Fuel-Efficient New Cars
2012 Kia Rio
2012 Kia Rio
The 2011 Kia Rio has a base price of $12,295, making it the cheapest new car on the market. So if you finance a Rio for 60 months at a typical rate of 5.3 percent, and if you put $1,000 down, you're still talking about a monthly payment of $227. You've now blown 94 percent of your $239 monthly budget, and you haven't yet factored in gas, maintenance and insurance. You could probably get a slightly better monthly rate by leasing, but then you're gaining zero equity in the vehicle. Regardless, the BLS figures show that some people in the bottom 20 percent income bracket are, indeed, buying new cars, and those few would benefit from the lower maintenance costs that come from a new and warrantied vehicle. What you won't get, however, are a lot of creature comforts — power door locks and windows, air conditioning, etc.
Watch Video: Kia Rio: First Look
2002 Toyota Camry
2002 Toyota Camry LE
You can do a lot better shopping for used cars. A quick online search using MSN Autos' new Decision Guide found a 2002 Toyota Camry LE with 111,306 miles for an asking price of $6,951. If you manage to scrape up a $1,000 down payment and get that 5.3 percent interest rate, you could buy that Camry for $113 per month. For about half the money of a tiny new Kia Rio, you would have a far more spacious Camry with a record of reliability and plenty of useful miles left on it.
See: Used Sedans for Less Than $10,000
2004 Ford F-150
2004 Ford F-150
Our Decision Guide search also surfaced a 2004 Ford F-150 pickup with 46,500 miles for $6,000. If your minimum-wage job or your lifestyle requires hauling stuff, you could hardly go wrong with the F-150. Sure, this isn't the most desirable model — at $6,000 you're getting a 2-wheel-drive model with a standard cab and a V6 engine, so don't get excited about hooking up a tow package. But this is a low-mileage truck with a lot of utility and a good reputation, and it's equipped with airbags, antilock brakes and a CD player. And with $1,000 down and a 5.3 percent interest rate, you're looking at a bargain monthly price of only $95.
2003 Chrysler Town & Country
2003 Chrysler Town & Country LX
Yes, we're suggesting a minivan. For $5,490 we found a 2003 Chrysler Town & Country in Florida with only 73,000 miles. Chrysler being the company it is, we checked J.D. Power and Associates' reliability ratings and found the 2003 Town & Country earned a respectable three out of five stars for overall dependability (although only a troubling two stars for powertrain reliability). With first- and second-row captain's chairs, plus the third-row bench, you could drive a seven-person army around in this thing. Or you could just throw all of your stuff inside and live rent-free. Well, not exactly rent-free. With $1,000 down and our hypothetical 5.3 percent interest rate, you could live in this van for $85 a month.
Read Blog: 5 Minivans Earn Top Safety Pick
2000 Lexus ES 300
2000 Lexus ES 300
We'll leave you with this last little gem: a 2000 Lexus ES 300 with 68,000 miles for $7,950. It's basically a luxed-out, albeit slightly older, version of the Camry discussed earlier, for around a grand more. For that you get leather seats, alloy wheels, power everything and a somewhat tarnished prestige badge that is still pretty impressive, even with a few wrinkles on it. Give it our $1,000 down, 5.3 percent loan treatment, and that's $132 per month — $95 less than a compact, roll-down-your-own-windows Kia Rio, and with just enough left over for gas and insurance. That's a reasonable budget for the bottom third of the income distribution, but with luxury befitting the top third.
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Sam Foley is a Connecticut-based automotive journalist who has written for GQ, Forbes, USA Today, the New York Post and various other publications.
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