Buying a Car for Your Teenager

The following post is from contributing author Laurel Gray.

If the thought of your teenager on the road fills you with dread, you are probably not alone. And if the prospect of texting teens behind the wheel isn’t chilling enough, there’s the financial aspect to consider as well.

Driving Already by plasticrevolver on Flickr

It seems like kids go from this view to the real thing in a few seconds, not 16 years!

About ten years ago, I drove by a modest home on the morning of the local high school graduation. Out front, in the driveway was a brand new red sports car with a huge bow on top. The sight made me uneasy on many levels.

For starters: What message was this sending to the graduate? Could the family really afford that car? Who would make the payments? Would the car be wrapped around a tree by midnight?

Even though some people give flashy new cars to teenagers, most of us would think long and hard before doing so. A better approach might be to plan the purchase of a car with your teen, laying out ground rules for the selection, purchase, insurance, maintenance, and fueling of the vehicle. During the discussion, keep a few facts in mind:

Cars Can Kill

The numbers don’t lie: According to statistics from the CDC’s National Center for Injury Prevention and Control and the Insurance Institute for Highway Safety, car crashes are the number one killer of teenagers in the United States. Nearly 5,000 teenagers die every year in motor vehicle crashes and nearly 375,000 are injured. A teen may be more careful with a sensible car they worked for rather than a souped-up one that came with a bow on top.

Think Safety First

An older Volvo station wagon may not thrill your teenager with its style, but it will stand up a lot better in a crash than a tinny compact car. Determine ahead of time what safety standards the car must have (crash rating, airbags, anti-lock brakes) and only look for models that meet the criteria.

Minimize the Insurance Whammy

There is a reason insurance companies charge teenagers more for insurance: they have more wrecks. A lot more. According to the CDC, “Per mile driven, teen drivers ages 16 to 19 are four times more likely than older drivers to crash.”

A MSN Money article  on insuring teen drivers warns that your auto insurance bill can rocket up by 50% to 200% when you add a teen driver to your policy. To trim costs, try the following:

  • Talk to your agent— Find out how your insurance carrier assigns drivers to cars to ensure that the least expensive car is linked to your teen driver. Some policies let you assign the driver to each car, others assign the youngest driver to the most expensive car whether you like it or not. Shop for other car insurance (check out quotes at Esurance.com) policies if you cannot designate car/driver pairings yourself.
  • Buy a beater— Some parents feel that new cars are safer, but new cars are generally more expensive to insure. Opt for a sturdy older model with a good safety rating.
  • Stay low— Google “teen rollover accident” if you want a good scare. Teens tend to exceed the speed limit, and as a result may lose control and roll over. According to the US National Library of Medicine, “From 1999 to 2003 in the United States, fatal rollovers were significantly more likely per mile driven for teen drivers of both SUVs and pickups compared with passenger cars.” The website safeteendriving.org warns against the false sense of security an SUV provides, and offers an alternative: “When choosing a car for your teen, think late-model, large, and solid. Ideal choices include either station wagons or full-size sedans with small engines and air bags.”
  • Hit the books— Some policies offer discounts to teens with good grades or discounts for teens who complete a driver’s education program. Check with your agent to take advantage of these programs.
  • Jack up the deductible— Newly licensed drivers are likely to have accidents. By increasing your deductible you can lower your monthly premiums significantly, while accepting the likelihood you will have to pay for a few fender-benders along the way.

Get Buy-In

Most teenagers eagerly anticipate the day they will have their own car. This enthusiasm makes for a great teaching opportunity, allowing parents to introduce long-term strategies for meeting financial goals.

Estimate the value of the car to be purchased and then set up a target amount to save each month. Teens with part-time jobs will be able to sock away extra cash for a car. Even teens without regular employment can help raise money through a range of creative endeavors.

Kids can have side hustles too! Encourage teens to sell their unused gear on eBay, mow lawns, walk dogs, tutor, babysit, or offer computer support to stone-age neighbors.

There are several ways you can help your teenager get on the road.

  • Dedicated Savings Account—Help them find an account with no fees, a decent rate of interest and no minimum balance requirement. ING Direct has offers a simple savings account for minors that can be set up with a few clicks. Agree that the account is strictly “hands-off” and will not be tapped for other items until the goal is met.
  • Matching Funds—Make a deal with your child that you will match what they save (or a percentage of what they save). Just as with an employer matching program, the carrot of those doubled dollars is a powerful incentive toward saving.
  • Direct Purchase—Some parents can and do purchase cars for their children outright with the caveat that grades remain high or with other stipulations, such as using the car only to go to work or attend classes. In some cases the parent will buy the car but require the teen to cover expenses such as maintenance, fuel, and insurance by themselves. This can still provide a valuable lesson in responsibility.

You will note that taking out a loan is not on this list. Teens with a few months of credit history may be able to secure a car loan, or parents or other adults may be able to co-sign a car loan. Expecting a teenager to cover the monthly payments is wishful thinking, as many do not have the financial or emotional wherewithal to stick to a payment plan. Missing payments on a car loan is a great way to ruin a teen’s brand new credit history or stick the co-signer with an unwanted bill.

The thought of buying a car for your teenager may make you uncomfortable, but think of it as an opportunity to teach your child financial discipline that will pay big dividends later in life.

Comments

  1. I did the matching funds thing with my son, matching 50% of whatever he saved in his car fund. Then his grandpa was nice enough to give him his old pickup truck, which is in excellent shape. So car fund became a car repair fund instead.

  2. To be frank, I never understood buying a teen a car. It’s not a necessity (except in limited circumstances-living waaaay out in the boonies without public transit perhaps) and it’s a huge expense, even if the car itself is cheap. Even if a kid as a job, it would have to be fairly lucrative to cover all the costs involved (maintenance, gas, repairs, insurance, parking). I didn’t have a car til I was married and in grad school. Only two of my friends had their own cars, and they were both beaters that their parents couldn’t get any value in trading in, so they passed them along to their kids. In high school, if we wanted a car, we had to purchase and fund it ourselves. I prioritized saving for university, and I’m glad I did. I recognize that there might be rationales for purchasing a car for a teen, but it seems to just teach them that they “deserve” to have their own transportation. Sadly, many people’s sense of entitlement gets them into debt as they grow up. I would hate to set this example in those important adolescent years.

    • I wish it wasn’t necessary, but we live 8 miles out of our town, and 40 miles from the city and no train like in the northeast. We have 4 kids, all grown now and have helped each with a car. For the kids to participate in sports, afterschool meetings, jobs and church activities, it only made sense for them to have a car. They have all had older cars, at least 10 years old if not older. While the upkeep in so many vehicles was a pain, hubby and son do automotive repairs and can handle everything but the major stuff.
      We pay for insurance and for money to and from school or church activities. They have to earn the rest of their gas money which has increased so much lately!
      I will admit, I will be glad when they are all completely out of the house and responsible for their own vehicles. 18 year old daughter (the baby) ran out of gas yesterday. Grrr….
      Bernice
      Don’t live your life in default mode

  3. It’s all in how you approach it.I got my grandfathers car, a 1989 leSabre. This wasn’t at 16. I was probably 19, and had to go off to college. I lived in the “boonies” and it was needed.
    I learned car repair, savings and budgeting, personal responsibility and accountablilty and many more life lessons from owning that car.
    I’ve saved thousands of dollars over the past 10 years doing my own car repairs, I’ve learned that paying for insurance once a year is cheaper than monthly (most things are like that). I learned that the driver is soley responsible for the safety of him/herself and his passengers.

    I miss it almost everyday.

    • Your story reminds me very much of my own. My grandmother gave me her car (a 1985 Buick Century). That car got me through high school and even the first couple of years at college before an electrical short caused a fire under the hood. It was never the same after that, so I walked around campus and to my job in the evenings.

      When I got a full-time job, I bought my own car, but I sure miss that first one.

      • Reminds me of my story too. I inherited my father’s old AMC Hornet, certainly one of the most massively un-cool cars ever made. I lived in the boondocks and used it to carpool to school (we didn’t have free bus service) and to go to work. You definitely never forget your first car.

  4. My 14 year old is already ‘saving’ for up for a car. She’ll probably end up with my 2001 Honda Civic by the time she graduates high school. However, she’ll have to be able to afford the gas, the oil changes, the maintennance, and that all adds up.

    The gasoline? If it’s going to keep rising in price, she may have to use her bicycle more often than not.

  5. I took a slightly different tact with my children. I matched dollar for dollar , my children saved. It motivated them to save and that way they have skin in the game. I pay for the insurance because it protects my assets as well as the car. They paid for gas and maintenance.

  6. I got my first car about 3 months after turning 16 in 2003. My parents matched my contributions dollar for dollar, a significant amount of which I had “earned” through helping with chores outside of my regular responsibilities as well as some incentives for good grades (Not always the best work ethic early in high school, but the car money incentive definitely helped!)

    I’m a bit taken aback by those who seem so adamant about a high school kid not getting a car. I don’t think it’s an entitlement, but if it makes sense for the family, can be accomplished by paying 100% of the cost up front, and you have reasonable confidence in the child’s driving abilities, then I don’t see what is wrong with it.

    Obviously every family situation is different, but to say that it almost never makes sense is overstating things a bit, I would say.

    • I agree with you. The way I see it, where we live, not giving kids access to a car leaves you with 3 choices: 1) Continue to drive them around to all their different activities (yuck) or 2) Don’t let them participate in activities because public transportation is non-existent (boo!) or 3) Let their friends drive them (Eeek!).

      Our kids will definitely have to contribute to getting a car and keeping it running and insured, but we will help them. The car’s as much for us (their chauffeurs) as it is for them. I think it’s easy to make a blanket statement when you either don’t have kids or you live in an area with a good public transportation system.

      • I also agree, and several of the commenters seem a bit judgmental on this issue. My parents got me a car more for them to not have to drive me everywhere more than anything else. Also, driving independently meant that I could take on some of the family chores (grocery shopping, depositing checks at the bank, etc.), especially since young people tend to have a lot of free time.

        That said, my parents did gift me my ’92 Jeep Cherokee on my high school graduation night (I graduated in 2005). I remember walking by it in the parking lot with everyone (it had a bow across the front) and saying that someone was really lucky. Entitled? Uh no. Incredibly, incredibly grateful is more like it. That car, despite it getting up in years, serves me well, and hopefully will continue to do so for a long, long time. Hubby and I don’t believe in car payments, so any replacement will have to be a cheap Craigslist car.

        If getting your teen a car is not right for your family, then don’t get them one. It is as simple as that!

        • Almost forgot a story that this article brought to mind. A guy I went to church/school with for a while in high school was given a brand new (literally, right off the truck new) red Mustang GT on his 16th birthday. I don’t remember how long he had it before he totaled it by driving it into the retaining pool at the mall, but I believe it was less than a year or two. He was showing off and not paying attention.

          His parents bought him a second (almost) new Mustang GT. Which he then totaled in an accident (thankfully, no one was badly hurt). XD

          At that point, his parents bought him a used Honda or Toyota or something along those lines. I know it survived the rest of high school at least. :P

  7. Hey FD — wondering what you think of this. My brother just sold his car and is using occasionalcar.com — he loves it. Doesn’t have to pay for maintenance, insurance, gas, plates — and doesn’t have to spend the time it takes to get those things accomplished either — wondering what you think of this kind of service? Almost makes me want to move to the big city. LOL.
    Wyogirl

    • Not a bad idea. Normally, I tend to lean toward ownership because the upfront costs pay for themselves over time. However, with higher those upfront costs (think homes, cars, etc.) it makes renting for the occasional use more attractive.

      I’ve been considering a similar scenario – renting an RV for our occasional vacations rather than buying one and leaving it parked in the backyard 90% of the time.

      • It got me thinking that to spend money for upfront costs on something that depreciates right away (vehicles) this would absolutely make sense. I live in the middle of nowhere, but for someone like my brother who lives in downtown Denver and takes the train to work, this makes terrific sense . . . He is a single dad, and he uses it on weekends to pick up his kids, etc. . .

  8. We bought a car as old as our 16 year old. The “pink monster” (Brown LTD that had lost its metallic) saved us many 20 mile trips to school events. They were only allowed to passenger each other after dark. It was always the family car and never allowed to venture too far.The car had to be home at specific times. The car- gas, insurance, repairs- was fully paid for by us. I think this made it easy to give the car rules.
    I have to admit we were lucky. Our kids were not drinkers and town was way to small for drag racing. The kids both watched a horrible accident of one of their dear friends soon after the car arrived at our place. I think that had a great deal to do with the car safety that ensued.
    The cross country team loved the car and cared for it like it was their own (since it was one of the few that had enough seat belts for one team).
    At 26 and 28 they are responsible adults and care for their own cars now- insurance and all:>)

  9. I have 13 year old twin daughters. I also have a VW Jetta TDI that gets close to 50 MPG — I plan on handing it over to the girls when they get their DL — if the car makes it that long — and I have every confidence that it will. But here is the rub — they don’t want a car! They say they would rather have me continue to cart them around. Ha! Fat chance. I live 10 miles from town center and umm — going to be so glad to give up that trip back and forth . . .

  10. I’m 19 and I bought my first car by myself. My parents simply weren’t in a financial situation to help me out. I paid for my driving lessons, test and license as well. I currently drive a 1996 Holden Barina that ticks all the boxes both safety wise (hello airbags, power steering) and looks wise (she’s little and easy to park). I think it’s an excellent opportunity to learn how to budget and save for a goal without relying on, pardon the cliche, Daddy’s credit card. I saved for my on-road costs first (roadside assist, insurance, and two years worth of registration) and then for the actual car cost. Each pay I put aside enough money that over the course of the year will cover my on road costs plus a little extra wiggle room for new tires and servicing. She’ll need a service pretty soon and I’m prepared for a few repairs thanks to my savings and my Emergency Fund if need be.

    Many of the seniors of my year had been saving for a car since Grade 8 and were happily driving in their senior year. I had to do 100 hours of supervised driving before I could get my provisional license. If this doesn’t happen where you are, consider blocks of lessons and a safe driving course. Perhaps you could match a reasonable amount that your teen saves to buy the first car. My dad told me when we bought mine that it is a first car, you don’t want to cry tears of blood if you scratch it or bump into a pole.

  11. I just covered this same topic recently. Our 17 year old does not have a car, and she does not have a job to help pay for any portion of the car, so for now, she will not be getting a car.
    We live rather close to school and with my husband working from home most days it has worked out.
    I agree, a red sports car with a big red bow…entitlement!!
    I too was given a car in college, it was a 78 Thunderbird. Don’t be jealous.

  12. I’ve seen a number of people recommend not to get a teen a car until they are 18 and legally an adult.

    And then title the car in the teen’s name with separate insurance so the teen’s actions do not affect the parent’s insurance.

    Presumably this would also significantly limit the parent’s liability exposure.

  13. My kids are far away from this as yet, but I think Wyogirl has a good idea. My parents did it for me too. Parents can use the opportunity to upgrade their old car and cascade the old one. Unless kids have a part-time job, it is doubtful that they’ll be able to buy their own, so the parents end up buying something for the kids anyway. I would think that operating costs should be the responsibility of the teenager though.

  14. When I got my first car, my parents agreed to contribute $1000. I had $2,000, for a total budget of $3000. I found a ’89 BMW 3 series for $1700, kept my $300 for repairs and what not, and got the $1000 from my parents in the form of gas. The arrangement worked out well for both of us.

  15. I’m not sure what the big deal is, I was given a new sports car for my 16th birthday (a brand new 08 Porsche Cayman S). And I have yet to have a ticket or accident. In fact my parents told me when I got it that they’d let me trade it in after a few years if I split the difference in price and insurance with them. In addition to earning my 4.32 high school gpa and now going to a great school on scholarship I worked 25 hours a week an now have a 2011 Cayman R and a 2008 BMW M5. Sometimes parents choose to provide rewards and incentives for hard work. Also, about families with with modest homes getting their kids nice cars, don’t forget they can still afford the car. Despite my nice cars, my parents maintain a modest home and don’t drive cars most would consider “flashy” because they just don’t really care about cars and it’s my passion in life so for them it seemed a better way to go. Just providing a counterview

Leave a Comment

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>