Budgeting and Saving

Two key parts of money management to help you achieve financial success.

What a Teen Needs to Know Before Buying Their First Car

Q: My son is 17 and has recently gotten his driver’s license. He works part-time while going to school and wants to buy a new car to impress his friends. Without killing his dream, how can I convince him that financially speaking, he has a lot to consider before making a decision?

A: A driver’s license is a major milestone for any teenager; it symbolizes freedom and independence. It’s no wonder that having a vehicle of their own becomes their next big goal! For many, owning a car of their own is a major lifestyle pillar. However, before hitting the open road, your son will need to find the best route to get his new car. Here are some things to consider as you talk to him about his goal:

What a Teenager Needs to Think About Before Buying a Car

  • Why does he want to impress his friends? Making a wise financial decision should be more important.
  • Does he truly need a new car or could a good used car do for now? A new car will depreciate significantly in the first year or two. Can he afford to lose that much money?
  • Does he plan to splurge on a new sound system, shiny rims or a customized interior? The extras won’t look so cool parked in the driveway if he can’t afford gas or insurance.
  • How will he pay for the car initially? He’s too young to legally sign for a loan on his own, so will he pay cash or will you lend him the money? If you co-sign a loan for him and he is unable to honour his financial commitment, you become 100% responsible for the loan as it is in your name.
  • Insurance for new drivers can be very expensive, and might be higher on certain vehicles. Ask your son to find out what his insurance costs would be for the car he’d like to buy.
  • Depending on the age of the car, maintenance costs might be as high as three times the cost of his fuel. Your son will need to save money on a monthly basis to maintain and repair his car. Does he have a budget to know what he can afford?

How to Test Drive Owning a Car Without Actually Buying

Encourage your son to test-drive owning a car, financially speaking. Set the money he would be spending on a loan, insurance and maintenance aside for 4 – 6 months in a separate savings account. He will find out very quickly if he can maintain his lifestyle while also paying the additional vehicle costs.

A driver’s license is a big responsibility, but so is owning a car and keeping it in safe repair.

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