It is probably hard for you to believe, but your baby just passed the road test and is a now a bonafide member of the driver’s license club. And yesterday, she approached you with a question you knew was coming: she wants to buy a car.
While the goal of saving up enough money for a vehicle might feel a bit overwhelming to both of you, the following tips and advice can help turn your teen’s dream of wheels into a reality:
Start a savings account
If your teen doesn’t already have one, open a savings account at your own bank. This will allow your child to have a safe place to save up and store the money she will need to buy a first car. As Titan notes, teens can track their saving progress on the bank’s website, and if they are stashing their money into a savings account, they will be less likely to spend it on frivolous items like pizza and iTunes. Speaking of money, encourage your teen to put most, if not all of the birthday and holiday cash that he or she receives from grandparents and other relatives in the account; it will help her to reach the goal even faster.
Be realistic about what a teen can afford
While your teen may dream of driving a new BMW or fancy pickup truck, the reality is she probably can’t afford it. Sit down with your child and really crunch the numbers. Look at car ads online and in the paper, and get her to see in black and white exactly how much green she will need to save. Since teens don’t have an established credit history and the high FICO scores car dealerships are looking for, they will probably have to pay cash right up front for the car, Teens Guide to Money notes. Gently guide your teen to a car with a price tag that is obtainable within a reasonable amount of time, as opposed to one that she (or you for that matter) could ever afford. Consumer Reports suggests you strongly encourage your teen to save for a used vehicle, preferably one that is just a few years old and still has many safe years of drivability left in it. Used cars tend to be a far better value and are much more affordable for teens.
Make a budget
Once your teen has a good idea of how much she needs to save for a car, help your kiddo create a budget that will allow her to reach this goal. If your teen has a part time job, set an amount that should be deposited every week into the savings account.
Consider leasing as opposed to buying
In some cases, it might make sense for your teen to lease a car instead of buying it outright. Many dealers require only a small down payment to drive a leased car off the lot, and the monthly payments are often lower than buying a vehicle. The downside to leasing is that you will probably have to keep the car in your name, as most leases require the owner be 18 or older with a good credit history. But for teens who need a car to get to school or work, it’s a great way to get them one sooner rather than later.