Depreciation

People have to pay many expenses – such as food, energy, clothing and, for businesses, salaries and wages – on a regular basis. But North Carolina State University economist Mike Walden says there’s another expense that’s often overlooked.

“It’s called depreciation. And what depreciation simply means is that you have a product that lasts a long time and over time it’s going to wear out. And that’s a cost to you as owner of that product.

“For a business this will be things like vehicles, equipment, computers – and actually businesses recognize this. One way they recognize this is they get some tax benefits, or tax consideration, for depreciation in that equipment.

“Now for people – average households – we do have products that depreciate. Our cars are a very good example. Yet many of us don’t recognize that, but if you purchase a new car studies show that maybe within two or three years that car will depreciate by up to a third.

“So this is a major cost for things like vehicles, for things like computers, appliances, et cetera – a major cost for businesses but also for households. And so households need to recognize that and consider it when they are making these big purchases.”