This post is from GRS staff writer Adam Baker. Baker, along with his wife and 20-month old daughter, will be spending the next couple of months exploring Thailand as they continue their recent backpacking journey.

Since the start of the economic slump started in 2008, the U.S. government has issued several incentive programs in an attempt to stimulate some positive movement in the economy.

First, came the popular $7500 tax credit for first time home buyers, which was to be paid back in $500 increments starting with the 2010 tax year. Next, they extended the homebuyer tax credit further into 2009, increasing the limit to $8000 and removed the burden of having to pay it back over time.

This past summer brought the controversial Cash for Clunkers program, which then spawned “Cash for Appliances.“ Most recently, the first-time home buyer tax credit has been extended, yet again, into 2010, and expanded to include some who hadn’t previously qualified since they weren’t officially first time homebuyers.

These incentive programs have drawn everything from wild praise to heated protests.

Did Cash for Clunkers bring success or regret?
Recently, the first few months of data has begun to come in from the now-closed Cash for Clunkers program.  The homepage of the official Department of Transportation website for the program, CARS.gov, now reads:

The enormously successful CARS program helped consumers who turned in gas guzzlers buy nearly 700,000 more fuel efficient vehicles in fewer than 30 days. By late September the U.S. Department of Transportation paid all eligible and complete dealer transactions. “There can be no doubt that this program drummed up more business, for more people, in more places at a time when our economy needed help the most,” said Transportation Secretary Ray LaHood.

But, not everyone is buying into the “enormously successful” label. A September article published by AOL Autos brings up some interesting facts about the CARS program:

  • An August survey concludes that 17% of Cash for Clunker participates indicate they feel buyer’s remorse over their purchases. This is nearly double the traditional rate of 6-8%.

  • While the average MPG of the vehicles in the program rose from 16.3 mpg to 24.8 mpg (a clear success), it’s estimated that individuals will be driving even more due to possessing a newer car. This could actually result in more fuel consumption overall.

  • The program takes from over 300+ million taxpayers and rewards only a small group of 700,000.

And AOL Autos isn’t alone in the criticism of the program.  Just a few weeks ago, Edmunds.com issued a press release stating that taxpayers actually ended up paying $24,000 per vehicle sold through the program.

If Edmunds’ reasoning seems a little too simplistic (I’ll admit it does for me), there’s a more-detailed study by University of Delaware, which concludes that the cost of the program exceeded the benefits by approximately $2000 per vehicle.

Studies, press releases, and government websites aside, I’m worried that these programs encourage people to buy larger ticket items during a time that may be very hazardous to their individual financial health.

The last thing most people need to be doing in a down economy is adding thousands of dollars in new consumer debt. And in the CARS example, the majority of this debt will be on a consistently depreciating asset!

The program is best suited for a financially responsible individual, who was already in the market for an upgraded automobile purchase. But it’s obvious that the majority of the transactions didn’t involve this type of situation. For that reason alone, I have a hard time considering the program a success.

If you think impulsively buying a car is a mistake…try a house!
I have my doubts about the effectiveness of the first-time homebuyer credit, as well.

Over the last three years, I participated in the real estate markets as an agent, property management, and investor. Unfortunately, most of my participation centered around the foreclosure and short-sale markets. I saw hundreds (if not thousands) of individual cases as the housing market went sour. Behind nearly every one of these foreclosures and short sales was a rushed and impulsive purchase several years before. There were only a couple exceptions.

Once again, this tax credit is perfect for those financially responsible individuals and families who are already in the market for a conservative home purchase. I just can’t envision that this is the case for the majority of the claimed credits.

Last year, many of my friends in their 20s and 30s scrambled to take advantage of the original $7,500 credit/loan. A few rearranged their plans or bought a little early to ensure they capitalized on the incentive. Months later, they watched as it was extended to $8,000 and changed to not have to be repaid over 15 years. The same people who were considered savvy for rushing to catch this opportunity, now had wished they had delayed it another six months.

That’s just the point. No one knows what our government or administration is going to do in the future. As a whole, we seem to be letting these programs be a leading factor in our decision instead of just a bonus. I don’t know many people who, looking back five years after a home purchase, would say to themselves, “That would have been a great purchase had we only gotten $8,000 up front.”

$8,000 is a lot of money — I’d love to have an extra eight grand right now — but a home purchase is one of the largest financial commitments you’ll ever make. Rushing into such a huge commitment can end up costing you exponentially more.

It’s about more than just the numbers…
Major financial purchases, including automobiles and houses, are about more than just the numbers.

Of course, we want to take all numerical benefits and costs into consideration. We shouldn’t ignore access to these government incentive programs, but letting them be the leading factor in our decision making process would be a huge mistake.

In your financial life, make sure you are the one calling the shots, not Uncle Sam. And if the timing is right for you…don’t leave any money on the table.  Milk him for everything he’s got!

This article is about Choices, News  Thursday, 19th November 2009 (by Adam Baker)