Though I've been car-free for years, I was recently left to ponder how we make transportation decisions when my local transit authority unveiled a new plan to fill a $17 million budget hole by making a pretty major series of changes to its fare structure. Because, as the agency's analysts mused, only 5% of its ridership used transit for errands — going out and coming back on the same transfer — they would eliminate this option, also increasing the fares and dismantling the “zone” structure so that a ride of a mile or two would be the same cost as a ride all the way across the metropolitan area.
It would, I argued — and the transit's authority's board strongly disagreed — put a lot of riders like me who use the transit system a few days a week (and never for commuting) in a situation where driving was preferable to riding transit. In other words, it would have a result very different from the supposed goals of the publicly-subsidized agency: putting cars back on the road.
Looking at the annual cost comparison: Transit always wins
My transportation geek friends and I debated this endlessly. A few laid out the decision in terms of annual costs — let's say a bus pass costs $100 a month for an adult, and a family of four could get bus passes for $260, or $3,120 annually. Even a very economical car would cost $250 or more per month, plus maybe $60 or $75 per month for insurance and maybe $100 a month for gas, somewhere around $4,900 or $5,000 annually. Even supposing maintenance costs were very low or zero, transit would still win big: less than 2/3 the cost of driving.
But don't forget “sunk costs” and the way we really make decisions
We do not, however, make decisions about transportation in this rational and simple manner. There are emotional hangups that prevent us from easily moving from one mode of transport to another; many decisions that are not as neat as “oh, that's cheaper!”
Say you have an older model car, for which you have paid cash or finished paying off a loan, and perhaps invested a few thousand dollars in maintenance and repair. Once this expenditure has been completed, we should (theoretically) eliminate that cost from our calculations. It's sunk cost! If your family is deciding next month whether to take transit or drive a car, we should only calculate insurance, gas, and upcoming maintenance against the cost of a monthly transit pass.
But of course you are not doing that. Why not?
- Insurance is usually not purchased month-to-month, but in six-month chunks.
- Even if you could decide on a monthly basis whether to activate insurance or not, you would probably keep a car insured (“just in case”).
- Cars are not very liquid assets; you cannot simply sell and repurchase them like stocks and bonds.
- Even if you could, cars are emotional belongings for some; we go so far as to name our cars!
- We don't make modular transportation decisions (i.e., the decision is almost never “will I drive or take transit this month?”).
Transportation decisions are made on a trip-by-trip basis
You get up in the morning and you are going to work. Even if you have no so-called “friction” in your decisions — if driving, taking transit, bicycling, and walking are all equally possible and would result in little substantial difference in time from front door to office chair — the financial component of that decision will almost always be made on an incremental cost basis. In other words, you will compare what you actually have to spend that day to drive or take the bus: gas + parking + tolls versus bus fare. In this circumstance, a trip on the bus with a few fare-paying children would usually be more expensive than driving, if you have to pay fares for outgoing and return trips.
There is always friction in our decisions. For transportation, friction might include the following:
- Cargo (hard to lug on the bus and even harder to carry while walking)
- The ability to go direct to a destination
- Side trips or necessary errands
- Your children's behavior and energy level
- Whether a long wait for a transfer or a late bus might add a great deal of time to an errand
- The need for comfortable versus stylish footwear
I favor bicycling, and every time I advocate a bicycling lifestyle, critics wonder if I show up everywhere “all sticky and gross.” (I just don't sweat very much. I also bike quite slow.)
More often than not, we make transportation decisions based only on the friction, and not at all on the cost.
This is why I think our local transit authority — and many public transportation pundits — have it all wrong when they're thinking about how to change fares or services. The best entry point for transit are those low-friction trips: errands that parents take with young children, say, to story hour at the library or to lunch with a friend. Out and back, with little cargo. Sadly, most transit fare structures seem to be targeted at daily commuters and those who don't have a choice (who either can't afford a car or don't drive); not at the entry-level transit-curious.
I think it's a pity. Creating a mix of car, transit and active transportation like biking and walking can drastically reduce overall household expenses (we spend, on average, 16% of our annual income on transportation), and if it was easier to make decisions on a per-trip basis, we might be more inclined to make bigger, “modular” decisions; like selling a car or buying a monthly bus pass or a commuter bike.
What should you do? Think about the ways to reduce friction in your trip-by-trip decisions; perhaps buying a nice raincoat and comfortable shoes for long walks, or choosing to meet friends at destinations that are easy to travel by public transit. It's a nice way to ease into small decisions that could add up to large financial gains.
Author: Sarah Gilbert
Sarah is a blogger by trade and a finance geek at heart. She cut her teeth on her first Excel spreadsheet full of financials at the tender age of 21, when she began her investment banking career in First Unionâ€™s Loan Syndications group. She went on to get her MBA from Wharton, work at Merrill Lynch and fall in love with analyzing company strategy and endless rows of numbers. She got into blogging as a marketing strategy and the blogging took. She now is a freelance financial and (award-winning!) literary writer, working in between baking bread and finding socks for her three little boys in her beloved 1912 Portland, Oregon, home.
Sarah's even-more-personal blogging about being an Army wife, parenting, food, biking and life can be found at urbanMamas and Cafe Mama.