I’ve had a lot of experience talking with financial clients over the years, and one thing that I hear from them from time to time is: “How do I help my child save for a new car?”
That’s an important question for parents. For those who have a hefty sum of money in their savings account, it’s tempting to simply purchase the car for their teenager.
But as a parent, part of your responsibility is helping your teen learn what it means to take responsibility for their lives. And that includes purchasing and maintaining a car.
How I Help My Kids Save for Their First Car
My wife and I make it very clear to our kids that we’re not paying for their car. I know firsthand how helpful it is to learn to raise money to pay your own way. When I was driving age, I got a job to pay for my first vehicle and I paid my own way through college. Those invaluable lessons of hard work and responsibility still help me to this day.
That doesn’t mean you can’t help your kids out, though. What my wife and I do with our teenagers is we set up bank accounts early on for them.
We tell our kids, “You have two accounts here—something you can spend and something you can save longer term.”
Whenever our kids get money from their job, for birthdays or Christmas, and so forth, we tell them that they have the choice to put it in their savings account or to spend it.
We add an extra incentive, though, to put the cash in savings. We tell them that we will match whatever they put in their savings account. So if our teens put $200 of their birthday money into their account, we’ll put in $200, too.
This strategy has worked well for our kids. Our two oldest boys have already purchased nice cars on their own. And our daughter also has a significant amount saved up—and she’s not even driving age yet.
Tips to Make Sure This Saving Strategy Works
In order to make this money-saving strategy work for you and your kids, you have to make sure of three things:
- Be consistent.
Be consistent with your kids and don’t be quick to hand over the keys and other expensive items. I’m not saying you can’t ever buy things for your kids. But I would caution you against always buying them expensive items since that can undermine the savings strategy you’re trying to put into place.
- Make sure Grandpa and Grandma understand what you’re doing.
If your parents or in-laws love to dote on your kids, they may want to buy your kids a car. But make sure they understand that you’re requiring your kids to save up with their own money to purchase their first car. Have that conversation with them as soon as possible. And of course, this isn’t limited to grandparents. If you have siblings or any other kind of friend or relative who tends to give your kids extravagant gifts—make sure they know what you’re doing.
- Make sure your kids understand all that goes into owning a car.
Have a conversation with your kids about the cost of maintaining a car.
My wife and I pay for our children’s car insurance, so we get to decide the type of car they get. But I require that my kids pay for other maintenance aspects, such as gas, windshield wipers, oil changes, tires, etc.
This also helps them make wiser choices when purchasing a car. As you know, some vehicles may cost $10 in gas for a trip to the beach while another vehicle may cost $40! These things are important for your kids to know.
Get a Budget in Place for Your Kids
If you’d like to use a comprehensive budgeting tool to help your children save and spend wisely, download my free budgeting tool here.
And if you have financial questions you’d like to ask me one on one, feel free to reach out to me at email@example.com