Money Lessons My Father Never Taught Me -- Ep.1 "The Subaru and the Lexus"

A boy is picked up at private school by his father in their old Subaru and he is clearly distraught. The father asks him what is wrong.

The boy asks, “Why do you drive this old piece of shit?”

Taken aback the father replies, “What’s wrong with the Subaru? It’s the most reliable car you can buy.”

The boy: “They make fun of me because we have such an old shitty car. Everyone here, their parents drives Lexus, BMW, Range Rovers. Why can’t we drive a nice car like that?!”

The father chuckled softly to himself and explained.

“You see flashy cars. I see debts and liabilities. I see people with -$80k, -$100k trying to show off. But all they are doing is increasing their debt burdens. We on the other hand own this Subaru outright. It may only be $30,000 but because we are not in debt to own it we have far more money left over for anything else we want. What we save in car payments pays for your space camp and your sister to go horseback riding. Why tie up so much extra money in a car if doesn’t get you there any faster?

In fact, the money we save, I Invest in buying other people's debt. We own our car but the bank owns theirs. And the banks sell those loans to investors like me. So the next time they make fun of you for the Subaru, tell them your father owns ALL of their cars and their fathers are paying me to own their cars in the form of interest.”

“What is interest?”

Interest is the extra money you pay every month to borrow money to buy things you cannot otherwise afford. Interest will cost you much more in the long run then just buying the item outright.