Oversubscribed: Are Recurring Monthly Charges Preventing Wealth Accumulation?

In the past, most consumers’ monthly subscriptions were newspapers and a house phone line. (I expect more than a few of you will point out that I left out the milk man; I still remember venturing into his cool truck on a hot summer day and begging Mama for some chocolate milk or even Jungle Juice!) Then came cable TV, and in-home internet service. But nowhere is consumption more conspicuously new and outsized than in the cell phone space.

A typical family of four with smartphones spends upwards of $3,000 a year. Is this new line item in the household budget poaching from other discretionary spending categories? Maybe so, but it is more likely that this expenditure is reducing potential savings.

Lest I alienate all the teenagers out there, I am going to make HUGE concessions up front. First, I will bow to the new parental perception that, if a child leaves his home without a cell phone, he will die alone in a ditch along a deserted highway. Not carrying a phone is not an option. Second, and this is not easy for me, I will concede that the child simply must have a smartphone so that he can be a part of every brilliant digital conversation that teenagers have with one another. “WRUD?” “IDK” “K TTYL.” Ask your kid for translation.

The basic monthly fee for a new smartphone is $40 per month. Did you know that the monthly fee for a paid-for, out-of-contract phone is only $15 a month? Did you know that, if you ignore the offer to upgrade, your bill should be reduced by $25 per month? (I’ve only confirmed this with my carrier, so please don’t hold me responsible if your carrier doesn’t operate in the same way.)

Using this logic, couldn’t a family of four follow a smart path of having two phones that are new and under contract and two that are out of contract? This would mean a savings of $50 a month. (I’m picturing the children with the new phones and the parents with the old phones. I’m pandering to the young readers because I want them to read the next few paragraphs.)

What will saving $25 a month mean to a thirteen-year-old? Well, if he does this from now until retirement at 73, he will have accumulated $1,177,567, assuming a 10% rate of return. While we are at it, let’s replace cable and instead subscribe to Netflix for $14 a month. This would save the typical family approximately $85 a month or $4,003,000 over 60 years. If there is a big game on, go to a friend’s house or, better yet, read a book! Knowledge pays off.

Contemplating the cost of these subscriptions, I was reminded of what British politician, Anthony Crosland, once stated: “What one generation sees as a luxury, the next sees as a necessity.” While the growth of the cell phone budget line item is troubling, the primary point of this article is to remind the reader of the power of wise decisions and compounding interest. Take ten minutes to look at your regular monthly expenditures. There may well be changes you can make to aid your accumulation. There may be a dozen different ways to save $25 or $85 a month while still choosing to upgrade your smartphone at every opportunity. Good!

The fact remains that while a few folks will hit a homerun financially, the vast majority of folks who achieve a state of financial security and contentment do so through deferred gratification and good habits. Ben Franklin reminds us that, “If we take care of the nickels and dimes, the dollars will take care of themselves.” May it be so with us and the next generation of consumers.

This information is believed to be accurate but should not be used as specific investment or tax advice. You should always consult your tax professional or other advisors before acting on the ideas presented here.