Are new cars a waste of money

We asked four money experts.

Gen Y: Justine Davies

Oooh, I loooove flashy cars! Cars beautiful, shiny cars were always a part of my upbringing as my Dad owned a dealership for more than 40 years. 

He lived, breathed and dreamt about cars. His favourite sport to participate in was rally driving and his ideal weekend away involved the words V8 or Indy or F1. For a bit of a break, to relax on the weekend, he'd go for a drive. Cars have been a big part of my life. 

Over Dad's decades in the industry, my observation was that second-hand cars were always much better value for buyers. I mean yes, new cars have the beauty of an unblemished body and the sensory delight of new leather. Everything is shiny and bright and made just for you. It's heady stuff.

The fact is, though, as soon as you drive that gleaming machine off the showroom floor it loses some of its value. It straight away loses the cost of the hefty government taxes that both state and federal like to scoop off the top of new car sales and it loses the premium of being new.

The same is true of bikes, caravans, jewellery and pretty much everything else. If you desperately want a new car and can easily afford it, then hey, sometimes the pleasure in owning it is worth the cost premium. For everyone else, there's Redbook.

Redbook is the authoritative guide to car pricing in Australia (and online is redbook.com.au). If you're wondering how much dough you'll do on a particular car over time, then check out their valuation reports. It's a 10-minute exercise that could save you a lot of money. 

Justine Davies is a finance author who has a weekly blog on yourmoney.com.au. Her latest book is Money for Nothing.

Gen X: Bruce Brammall

Oooh, I haaaate flashy cars! Cars beautiful, shiny cars are the greatest way Gen-Xers can waste money on this planet. Justine, you're off with Santa's elves and a few fairies! New cars are gigantic wealth suckers. The flashier, the suckier. Financial vacuum cleaners, souped up by Tim "The Tool Man'' Taylor.

They clean out wallets, bank balances and credit ratings like little else, except maybe poker machines and owning race horses. And li'l sister Justine knows this! She admits that "second-hand cars were always much better value''. Some people might find the following admission embarrassing. I don't. I bought my first new car aged 38.

Because it was the bottom of the GFC and then-PM Kevin Rudd was offering obscene bonus tax deductions to encourage businesses to buy new cars, it was almost cheaper to buy new than second-hand. Cars are depreciating assets in a class of their own. "Loses some of its value'', Justine? Try 20-30 per cent as soon as you sign up. Then another 20 per cent in year two. 

The more money you spend on cars, the poorer you will be. I can safely say my bottom line is $100,000 better off today than if I'd bought three or four affordable new cars over my working life. Cars bring enormous joy to some people. If so, go ahead and buy new ones. But understand the huge impact they have on your finances. Regularly updating your wheels to new will cost you $10,000-15,000 a year, per car, every year. 

Bruce Brammall is the author of Debt Man Walking (debtman.com.au) and principal adviser with Castellan Financial Consulting.

Baby-boomers: Mark Bouris

Not always, although it's a scary fact that a new car loses a big chunk of value as soon as it leaves the showroom. Definitely not a money-making proposition. For Baby Boomer individuals and small-business proprietors with limited budgets, there is merit in keeping your car a little longer than the standard three or four years. That's provided it's reliable and you haven't got too many kilometres on it.

Just on that, it's always intrigued me that 30 years ago, the dealers' sob story on cars that had hit 100,000 miles (161,000km) would be about how it had too many miles on the clock and was not worth much. However, in the modern era, cars are far more reliable and rarely play up but the new "drop dead'' benchmark is 100,000km, not miles that's good marketing by the dealers!

Often the justification for turning your vehicle over every year or two is tax. We've all heard, or possibly said, ``I may as well trade the car in on a new one because I'm saving half the payments in tax''. That's not always exactly correct, for three reasons.

First, if you use your car for business you get a deduction for the business portion only and that is usually much lower than 100 per cent. Second, with changes to the marginal tax rates during the past 10 years there are many more people with a marginal rate of 30 per cent rather than 45 per cent.

Third, the luxury car threshold cuts in around $60,000, which means even a vehicle for which you've paid more than $100,000 can only be depreciated up to that threshold, so the excess amount can't be written off against your business income over time. Your call.

Mark Bouris is the executive chairman of wealth management and advice firm Yellow Brick Road.

Retirees: Kerrin Falconer

Retirees were brought up in an era when many families did not own a car. Riding a bike, walking or catching public transport were the way to get around. Shopping was likely to be local and leisure activities largely centred on the home, neighbours and family. Owning one car, let alone two, was the exception.

For those who did own a car, it was likely to be a Ford or a Holden solid, built to last and sometimes a ute. Cars were designed for reliability, not necessarily comfort or safety. There wasn't a seatbelt or airbag in sight and you were lucky if it had shock absorbers. A radio was an option and surround sound, Bluetooth and GPS navigation hadn't been invented.

For most retirees, it just never made sense to buy a new car when the kids needed to be educated, the mortgage paid down or there was wealth for retirement to be accumulated. However, kids have now well and truly left home and are independent, but now it is all about leaving them an inheritance.

Retirees have long fixated on this goal but perhaps it is time for retirees to indulge their long-held desires, if they can afford to. Yes, it is a waste of money to buy a brand new car. The value drops by thousands as the car is driven out of the showroom and the money would probably be better spent maintaining wealth.

But in all reality, children who receive that wealth as an inheritance are likely to spend the money themselves on a new car. So to my mind, if it is a long-held desire and you can afford it, then go for it. You have earned the right to spend your own money. For a lifetime, retirees have been responsible and reliable. There may not be much time left to be irresponsible. 

Kerrin Falconer is a financial planner.