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You remember how cool it was to sit behind the wheel of your first car?
Even if it was an old beater, that car was probably your first real sense of freedom. And that’s why so many 16-year-olds freak out at the thought of owning their own car. They want that sense of freedom too!
But if you’re a parent, you know the financial reality behind owning a car. Even if you pay cash for the car—which you should—you still have all kinds of ongoing costs to keep up with.
So how do you make sure your teenager’s car doesn’t wreck your budget (or your teenager’s budget)?
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Here are my suggestions:
The matching plan.
My dad called this the 401-Dave plan. Basically, if I saved up $4,000 for my first car, then he would match that with another $4,000. So I could buy a nice, used $8,000 car. If you aren’t in a situation to chip in like this, think about other ways you can incentivize your teenager to save.
Then sit down with them and walk them through how to create a budget for the amount they need to save. Make sure it’s a reasonable goal. If your teen has two years to save $4,000, then they’ll need to save $167 a month to reach that goal. By breaking down the budget like that, you’ll help them see the reality of making their savings goal happen.
The $1,000 car.
Here’s a news flash: You can actually buy a car for $1,000! That’s nuts, right? But it’s true. That car might not be super cool or flashy or make all the girls swoon, but it will get you around town just fine. Maybe your teenager needs to lower their expectations from the “cool” car to something that will just get the job done.
If you’re able to help out a little, you might want to consider sharing expenses with your teenager. Maybe you’ll commit to buying the car if they will commit to paying for the insurance, gas, maintenance and all the other day-to-day expenses. Or maybe it’s the other way around and they buy the car while you pay for the everyday stuff. The point here is to make sure they understand the specific cost in owning a car. Write it all down so your teen understands these details.
Related: Saving money shouldn’t mean sacrificing coverage. People who have worked with an insurance Endorsed Local Provider saved over $700 and got 50% more coverage. Find out how much you could save.
Talk to people you know.
You’ll never know if you don’t ask. Talk with people at church, at work and in your community. You might get a really good deal by just finding out who is selling a car. You’ll always save money when you buy from an individual, not a dealer.
If your teenager really, really wants a car, but they’re worried about paying all the expenses, here’s a quick and simple solution: gift cards! Birthdays, Christmas, graduation—ask for gas cards or gift cards every chance they have. This one seems simple, but you’d be surprised at how far a couple of $100 gift cards will go.
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Saving on insurance.
A lot of teens have no idea how much insurance costs until they get that first bill. It isn’t cheap. Many insurance companies offer discounts for teens who have taken driver safety courses or who make good grades.
The best way to find affordable coverage for your teen driver is to work with an independent insurance agent who can shop around and help you compare policies. They’ll dig up all the best deals so you can choose the coverage that fits your budget. It’s also important to have the right amount of coverage, and an insurance pro will make sure you have all you need. Look for an agent with the heart of a teacher who will sit down with your teen and explain their insurance costs and how their driving record can affect them.
Remember, you’re the parent here. Don’t commit to doing anything that you are financially unable to do.
If you’re unable to pay for any portion of your teen’s car, including the expenses, that’s fine.
Don’t beat yourself up. Instead, look at the bright side: Owning and maintaining a car will be a great lesson in responsibility for your teenager.
Help your teen understand the financial realities of owning a car and how to save on the expenses, and you’ll be doing them a huge favor in the long run.