Buying a car is a big responsibility. Every year, parents of teenagers across America watch as their kids take this huge next step towards independence.
More parents than ever are buying cars for their kids, but that doesn’t mean that teenagers are not involved in the process. It may be that many parents are the ones “buying” the car because they are using their many years of credit history to finance a loan, but they are expecting their kids to contribute to the loan payments and other expenses.
Although circumstances are different from family to family, all parents can use these five strategies to ensure that their teenagers are ready for the responsibility of buying and owning their first car.
1. Make sure your teenager knows how much you are willing to contribute.
This information should not be a surprise. Whether you are contributing a lot, a little, or nothing at all, it is better to make sure that your child knows what to expect. Clear communication is always a great parenting strategy anyway, of course. But think about how tense conversations about money can be with friends, significant others, partners, or your own parents. You don’t want to set your child up to be confused, disappointed, or uncertain about what your role is going to be in funding the purchase of their first car.
2. Decide who will be paying for the car or who will be on the financing application.
Regardless of how much you are contributing, you also need to make decisions about the logistics of paying for the car. If you plan to pay cash, things are pretty straightforward, but what if you are financing the car? Assuming your child does not have a credit history, how will that affect their ability to get a loan? Will you have the financing put in your name, or will you consider being a co-signer? Even if you are not putting any money towards your child’s new car, you may choose to be a co-signer in order to help your child get the best financing available.
3. Remember that the car itself is not the only expense.
When it is time to start saving, remind your teenager that the expense doesn’t end when the car is purchased.
Make sure your child understands important concepts like downpayment, premiums, interest, insurance, title fees, registration fees, and regular maintenance costs. When you are shopping for cars, help your inexperienced car shopper look at how different options affect short and long term spending.
4. Figure out how your teenager is going to earn an income.
Now that we have the planning and basic communication steps out of the way, it is time to talk about the fun stuff: earning an income! Your teenager may not have gotten a paying job before, but the expenses associated with buying and owning a vehicle require some form of income.
You and your teenager need to sit down and look at the options. Are there jobs that they can get to without yet having a car? How much help can you provide in terms of transportation to-and-from work? Can your child earn any money by working directly for you, doing jobs that you would otherwise pay someone else to complete?
Zety has put together a useful guide to employment for teenagers that can help you find some options.
5. Help your teenager create (and stick with) a budget.
This is especially important if your child has not had a job before, or hasn’t had much experience with budgeting. Parental advice in this area can be so important! Your years of experience are valuable here. Help your teenager understand how much of their income they should be saving for their down payment, monthly loan payments, annual registration, and insurance costs.
Because teenagers are new to budgeting, you will probably want to check in occasionally to make sure they are still on the right track. Otherwise, their process of getting a car is going to take a lot longer than they want it to.
What else can you do to save money for a downpayment?
Before you finance a car, there are things you can do today to prepare for your monthly payments.
Financing a major purchase like a car is a big decision. Before you apply for a car loan, you should be taking steps to make room in your budget for the monthly payments that will soon be your responsibility. The good news is that these steps are manageable if you break them into smaller, attainable goals.
Our eGuide explains what you should be doing today to prepare for an auto or mortgage loan. To learn more or discuss your teens' long-term savings goals, reach out to our team today at (405) 235-3030 or 1(800) 6780-5363.