As a parent, few phrases cause unease quite like your teen saying, “I want to get my own car.” Not only does it signal that your baby is growing up, it also means changes to your short-term financial forecast and less control over their safety and whereabouts.
But fear not, parents. This practically unavoidable topic can work in your favor. In fact, it’s your opening to talk with your teen about finances and accountability. If you’re wondering where to start, here are five questions that can lead to important conversations that’ll prepare your young adult for their first major purchase and grown-up responsibility.
Who will pay for your teen’s new car?
While some parents have the means to buy their teen’s first car, that’s an unrealistic notion for many families. So what can you do instead? Well, you really have two options: Have your teen pay for it entirely on their own or offer to match their savings efforts. If you can afford it, the second option helps your teen get into a more reliable car since they’ll have greater buying power. Just be sure to put a cap on how much you’re willing to match — one that’s realistic for your budget, whether that’s $2,000, $5,000 or more.
How do they plan to save for their wheels?
Working hard to save for their own car gives teens a true sense of accomplishment and ownership, but chances are they’ve never saved up that many greenbacks. Here are some tips your teen can use to help them get started on their saving journey.
- Consider the price of cars similar to the one your teen wants and factor in taxes, a title and a tag into the total.
- Think about ways to earn money, such as working a part-time job, babysitting or doing lawn maintenance.
- Open a Teen Freedom Account or savings account.
- Create a saving schedule that includes both your teen’s short-term and long-term savings goals.
- Ensure that goals are S.M.A.R.T., meaning they’re specific, measurable, attainable, relevant and time-bound.
- Account for their other possible expenses like clothing, fun with friends and video games.
- Modify spending habits so they understand that every time they make an unplanned purchase they are delaying their car purchase.
- Save 10-20 percent more than they think they’ll need so they will have some cash on hand in case of an emergency.
What kind of car will they choose?
What you envision as an acceptable car for your son or daughter probably differs from what they want. That’s because most parents want the safest option while many teens want the coolest option. Chances are you can find some middle ground. Just keep in mind that the Insurance Institute for Highway Safety warns against young drivers operating cars with a lot of horsepower or a high center of gravity. Instead, they recommend bigger, heavier midsize cars in their list of Best Choices for Teen Cars Under $20,000.
Do they know about insurance and its costs?
Auto insurance may not be the most exciting topic — especially for a teen — but it’s an important one. When discussing insurance with your teen driver, you’ll want to cover these bases:
- Outline why carrying insurance is important and clarify that it’s a legal requirement.
- Start an insurance quote with your preferred carrier and show your teen the cost of adding them to your insurance plan.
- Decide who will cover the additional expense or if the costs will be shared.
- Make sure they understand that these costs will likely increase if they get traffic tickets or get into an accident.
- Give them a beginner’s lesson on insurance, including coverage types, deductibles and what to do if they’re in an accident.
How will they maintain ongoing costs and prepare for unexpected ones?
A lot of times teens are only focused on what’s happening right now. Help them understand the ongoing expenses to expect as a car owner by showing them the real-world expenses you pay. This includes, but isn’t limited to, the cost of gasoline, oil changes, tires, tune-ups, insurance and unexpected breakdowns. Speaking of the unexpected, it’s also a smart idea to encourage your teen to keep a small emergency fund to help cover mechanical issues.
Need help guiding your teen along their path to financial freedom and talking with them about saving money or how to manage their finances? Stop by your nearest branch. One of our crewmembers will be happy help steer you and your teen in the right direction.