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.
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
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.
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.