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Usefulness & Utility Trump Asset Value

Posted By Jim On 06/03/2008 @ 1:26 pm In Personal Finance,Taxes | 3 Comments

I was reading No Debt Plan’s post about how you should only by appreciating assets on credit [3] when I came to two conclusions: there aren’t many appreciating assets and, given the first observation, an asset’s value has more to do with its utility than its resale value.

There aren’t many appreciating assets out there in the first place. Besides your house, I don’t think there are many things regular people buy that appreciate in value. Regular folks don’t buy art, rare stamps, or other exotic collectibles (the collectibles they do collect are often of dubious resale value and people collect them for the fun, or utility, they derive out of having the hobby) and even if they did, the prospects of those items appreciating are murky at best.

Asset value has more to do with utility than resale value. When I buy a car, I’m certain it’s a depreciating asset, but I buy it all the same because it provides utility. Economists will argue it provides as much utility as its value depreciates (otherwise, if it provided more then people would pay more for it, if it provided less then people would pay less for it) and they’re right. Remember that buying a car affords you the ability to widen your geographic reach. The most important reason for widening your geographic reach is that it increases your employment prospects (it also gives you more options when you buy more depreciating assets!). So, while you are buying an depreciating asset, it could be provided you with a job opportunity that earns you more than if you didn’t have the car.

Lastly, don’t call your car a depreciating asset, I’m pretty sure it hurts her feelings.


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[3] you should only by appreciating assets on credit: http://www.nodebtplan.net/2008/05/21/only-buy-appreciating-assets-on-credit/

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