Does Your Teenager Need His or Her Own Ride?

Hey Paul: Our son just turned 16 and has his driving permit. He drives our family cars – a Toyota Camry and Chevy Tahoe. We plan to get him an inexpensive car once he earns his full license – what do you recommend?

My daughter is going through this rite of passage herself so I can give you a few insights from our experience. There are many websites that give practical advice on buying a car so I won’t go into the “common sense” ideas that others have penned much more eloquently. USAA has several good posts about teenage driving and insurance. One of USAA’s recommendations is staying away from compacts and SUV’s that have higher crash rates for teens; their top 10 are four-door sedans like your Camry.

For some of my readers money is no object but even if that is the case I recommend starting out all new drivers with a “beater”. My friend, Daniel Wrenne, has an excellent blog post on Navigating Car Buying Decisions. Daniel’s financial planning practice focuses on young physicians who could potentially buy an expensive car. But just because you can doesn’t mean you should, right?

His four points fit well with teenage drivers so I’ll modify them slightly to fit your family’s situation. First, start with the “Why”. Is the car to simply take your son from point A to point B? Will having an extra car free up Mom and Dad’s chauffeuring time? Is it a status symbol for him or his parents? Will owning a car teach responsibility or reveal immaturity? Of course it could be each of these to some extent.

The second point is determining the true cost of ownership. The sales price is only the first of many on-going costs. Daniel emphasizes the well known but often ignored high depreciation costs in the first few years. Buying a car at least five years allows the steepest drops in price. In our case we got a great deal on a 2004 Sebring for $1850. Title and sales tax were $138. Registration will be another $50. Of course there is a reason a car is selling for less than 10% of its original sticker price.

Lurking with every used car purchase is the preventative maintenance and the fear and reality of major repairs. Although my wife thinks I am completely over-the-top on this one I think a fitting metaphor is what you experience when you have your first child – it runs through your mind all the ways they can get hurt or worse. Of course over time you learn that that kids are pretty robust and stop sterilizing everything they own and checking on them in the middle of the night. Hopefully I’ll come to the comfort zone with Bethany’s car soon.

The third point is to set your budget. In your case it sounds like you are being very reasonable in looking for an inexpensive car for your son. I encourage you (or him) to be able to pay for the car up-front – NO financing! Living within his means may be one of the most important lessons you can teach him. I find it rather odd when I see luxury car commercials with great financing options. But perhaps that’s the American way. In our case Bethany lifeguarded two summers (pulling one girl from the drink) and her grandparents helped out to buy the Sebring.

An important part of the true cost of car ownership and budgeting is the added cost of adding a teenager to your auto policy. In most cases it is cheaper to add your child to your own policy rather than having them shop independently for a policy. As a rule of thumb plan on your auto insurance premiums doubling with the addition of a teenage driver. And that’s with a good student discount and driving course. In our case adding a third car even of much less value than our other two vehicles added about $35 a month to our premium. Adding Bethany to the family policy added another $75 a month. This took our monthly premium from $91 to around $200.

The final consideration is to beware of the mind tricks. To be honest these can involve important tradeoffs. Do I buy a newer car that has more safety features and less chance of major repairs? Does the gas-savings of a compact offset the risks of every other vehicle that I may run into being larger? Should I finance to truly get the car of my dreams? These issues may not be trivial but often cloud what are the more important decision factors.

So in conclusion look for a car that you can pay cash while doing the standard due diligence on repair and reliability. Bonus advice: Wait a few years until they get their own ride – I was 21 when I got my Honda Prelude and although open to some debate I think I turned out alright.

Dr. Paul Hamilton, CFP will be offering a free Social Security Workshop this Sunday, August 7, at the Jessamine Public Library from 3 to 4pm. It is not necessary but if you have one bring a laptop/tablet/smartphone and your SS questions. Contact Paul at Paul.Hamilton@Asbury.edu with any questions.