Conventional Wisdom Money Save Money Waste Money

Following conventional wisdom can cost you.  Conventional wisdom is a general or wide spread belief.  It is anything that is generally accepted.  But just because “everyone” accepts something does not mean that it is true.

Conventional wisdom maintains that in order to have a decent, functioning vehicle, one must buy new or relatively new. This means financing the purchase. A new car, however, begins depreciating in value almost the moment it is driven off the lot.  According to the value of a new car, the moment that it is driven off the lot, reverts from the retail price to the whole sale price. It proceeds to lose about 15-20% of its value every year thereafter. offers the 2002 Ford Taurus as an example.  The retail value of a 2002 Taurus is $19,035.  The wholesale price is $15,390. The same car with 13,000 miles on it, or approximately a year’s worth of driving, is worth $14,665. Frugality experts recommend purchasing a used car and paying cash. In this way, not only does the buyer save himself some of the depreciation, but the he also avoids finance charges and interest.

Credit cards, too, play into conventional wisdom.  “Everyone” has one.  Credit cards are not a problem as long as the balance is paid off every month. It becomes easy, however, to justify a purchase when the credit is so readily available. If cash is not available at the time of purchase, what is the likelihood it will be available to pay off the purchase later? Credit card companies are banking on borrowers carrying a balance. That is how they make money. They charge high interest rates and severe penalties for late payment.

It is also generally accepted that having a credit card is a good way to boost credit rating. A credit score is a way for lenders to determine if a consumer is a worthwhile risk. Lenders want to see that obligations are paid regularly and on time.  A credit card is certainly one way to prove credit worthiness, but so are other forms of obligation. Paying the rent, utilities and cell phone bills on time are other ways to boost a credit rating.

Conventional wisdom tells us that there are things that everyone needs that they really do not.  One example of this is life insurance.  The purpose of life insurance is to replace the income that would be lost if a parent or spouse passed away.  It is a way to care for loved ones and make sure their needs are met.  Life insurance is a worthwhile investment if someone is thirty-five and has a family to look after.  Life insurance, on the other hand, is not necessary for a sixty-year-old with a nest egg and grown children.   

Another example of this is baby and toddler foods.  A small child can be weaned directly onto table food.  Granted, you may not want to give baby the spicy chili, but by all means get a fork and mash up the potatoes and peas that are already on the table.  A baby does not need special food once ready to graduate from milk or formula.  Likewise, separate meals and snacks for toddlers are unnecessary. A toddler can snack on the dry cereal mom and dad keep in the cupboard, just as easily as they can eat dry cereal-like snacks that come in little plastic canisters. These items can cost the same as an entire box of dry cereal.  Conventional wisdom tells us that it is necessary to have special foods to meet a young child’s dietary needs, but their dietary needs can be met with simple healthy foods.

Conventional wisdom is what has us running to keep up with the proverbial Joneses.  It tells us that newer is better. Bigger is better. And everyone knows that newer and bigger are both going to be more expensive.  But this is new conventional wisdom. Once upon a time the conventional wisdom embodied resourcefulness and frugality.  “Everyone” knew that a penny saved is a penny earned.  Perhaps, rather than accepting conventional wisdom, more people ought to rely on their own wisdom.  Perhaps, newer- where conventional wisdom is concerned- is not necessarily better.