Every teenager is excited to get their own set of wheels. It’s a rite of passage. However, some teens are eager to buy before they have the funds. Depending on where you live it may be more or less important that your teen have their own car. If you live in a more rural area, then they may need one to get to and from school or even just to help you out by getting the bread each week. While those living in the city, with good public transportation, may not need a car so soon. No matter the rush you or they are in, here are our top tips for helping your teen save up for their first car.
Should I help fund my teen’s first car?
This is a question so often asked and many experts have differing opinions. However, your child hopefully already has financial sense, and enough sense not to expect you to buy them a brand new car outright. According to Scott Pape, better known as The Barefoot Investor, no teen wants to sit down with you and make a budget or look at spreadsheets. However, when the time comes to buy their first car it’s also the perfect time to sneak some solid money-managing lessons in.
“My secret source in financial education and for raising strong, confident adults is to focus on hormones. And the hormones don’t get any more excited than by the prospect of having an ultimate freedom machine.”
Talking to Mamamia, The Barefoot Investor went on to say, “How well adjusted is that child going to be if they get a brand new car given to them by mum and dad? I don’t care how rich you are. If you buy your child a brand new car for their 18th birthday you’re an idiot.”
It doesn’t get much more straight-forward than that. While you should aim to instill financial sense into your teens, so that they are better able to save for their first car, you shouldn’t put your own money into the purchase of one. This will be your child’s biggest lesson in finances to date so it’s important that you teach them right and teach them smart.
“I think that encouraging your teenager to work and save up, even if you match them dollar for dollar, is what we call one of life’s teachable moments.”
Help them come up with a budget
Help your teen save up for their first car by helping them to come up with a budget. A realistic budget that is. To save money your teen should not be looking at loans in order to get a nicer set of wheels. Instead, their first car should be a used car in order to save money and pay in cash.
By paying in cash for their first car through a private seller, your teen will be better able to negotiate cost and will have learnt how to save up and be rewarded at the end.
Sit down with your teen and come up with a list of suitable cars in the resell market that they may buy. Of course, you will want to look into the safety features of each vehicle before deciding. Your teen’s safety should be your number one concern when buying a new car. However, that doesn’t necessarily mean you have to buy top of the line.
Every teen’s budget is going to be different, based on the amount of money you’re chipping in (if any) and the amount they earn. Don’t forget to factor in any other expenses your child may have besides a new car. Sit down and write up a budget based on their current earnings and expenses. They will already have a good idea of how much they want to spend on a car and how much they already spend on other items, like clothes and games.
However, they mightn’t realise just how much they are currently spending and will likely overestimate the amount they have to spend on a new car, not taking into consideration extra expenses like gas, maintenance and insurance.
You can use tools and online budgeting apps to help organise and create budgets as well as simply get a better overview of expenses and earnings. This is a great way to help kickstart your child’s finance savviness and teach them how to be more frugal with their purchases. Sometimes we simply don’t realise how much we’re spending on small, everyday items until we see them in a graph or in a spreadsheet.
Set savings goals and make a plan
Now that you both have a better understanding of how much money is coming in and going out you can help your teen set a savings goal for their car and make a plan to reach it.
If your teen already has a part-time job it may be time to look at their earnings and see what prospects they have to make more, either by upskilling, getting another job or increasing their hours. Some part-time jobs for teens pay more for their time than others. Check out what similar jobs are going for in the area.
If your teen doesn’t yet have a job then saving up for a new car is the perfect reason to get one. While they will have to start from the bottom and work their way up, having an end goal in place can be a great excuse for any lazy teen to hand in their resume.
If your teen doesn’t want to commit to longer hours or isn’t quite ready for part-time work, they may instead think about working odd jobs. While it will take them a lot longer to save up for their first car, odd jobs do add up and will teach your child the value of hard work. While they will need to save up enough to buy the car itself, if they’re not ready to commit to regular work, then they will have to save up more to cover the first year’s insurance costs as well as take into consideration maintenance and gas.
You can of course add your teen to your own insurance however, according to a report from insurance quotes, car insurance costs an average 79% more when a married couple adds a teenage driver to the family policy. This cost can be even greater depending on where you live so you will need to decide whether you bear the cost of their insurance on your plan, or whether they should pay for their own cover as well.
Whether you decide to take on some of the cost yourself or simply help your child with their savings plan, buying their first car can be the largest lesson in finances your child has yet had. It’s the perfect teaching moment to help them become financially independent and frugal adults.