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It’s a question many parents ask themselves. Should you purchase a first car for your child, versus having them save the money on their own. My son turned 16 about six months ago, and is currently shopping for his first car. Naturally, this has led to many conversations with other parents about their own experiences.
What I’ve found, somewhat surprisingly, is that the majority of parents I’ve talked to paid for their kids first car outright. Some even cover the operating expenses, such as insurance or repairs.
I’m not going to try to answer the question with an outright yes or no, but I do have an opinion, and will make an observation.
Yes, the Mystery Money approach will be very different than most of the parent’s I’ve spoken with, a fact that I’m very comfortable with.
After all, based upon the track record of the average North American family, living differently is something we should all aspire to.
THINGS TO CONSIDER
One could question whether anyone needs a car when they’re 16 or 17. For starters, there’s the cost.
After all, new or used, cars really are a money pit. Where you live can also be a factor.
If you’re in an urban area and have access to transit, it’s fairly easy to get by without owning a car, where it may not be that way living in a rural area.
I didn’t own my first car until I was 22. When I started driving at 16, I was fortunate to have easy access to the family car, so I never felt the need to buy my own.
Long before the phrase became popularized within the personal finance community, my mother was very ‘mustachian’ in her approach to transportation.
She wasn’t much for biking, but for over 25 years she walked a couple of miles to and from work every day, rain or shine.
My mom scoffed at the thought of driving a car over that distance, in fact she still does.
Maybe if my access had been more limited, I would have felt differently.
THE CASE AGAINST BUYING A CAR FOR YOUR KID
A car is likely going to be the first major purchase your child makes, even if they opt for an ‘old beater’. In buying it FOR them, parents are missing a prime opportunity to teach the following valuable lessons about money:
Delayed Gratification.
The ability to delay gratification is very powerful. Trust me, it’s a skill you want your child to have. It will help them later in life. Delayed gratification builds up one’s resistance to spend impulsively, and improves their ability to make sound financial decisions.
The Value of Money.
If you pony up the $$$ on a car for your kid, they’ll never fully understand how much work went into earning the cash required to make the purchase. And while they may be very grateful for such an expensive gift, they will never value it as much as if they had earned it themselves.
The Value of Hard Work
There is no substitute for hard work. – Thomas Edison
The value of money and hard work are closely integrated. Making money (legally) takes work. Hard work. Nothing good in life ever comes easy. It’s important for kids to learn this when they’re very young.
It begins at home, through helping with family chores and continues when they get their first job. There’s no question, earning the money to buy a car is definitely going to require some hard work.
Good Savings Habits
Think of the great savings habits your child will learn as they strive to reach their car buying goal. They will constantly need to making important spending decisions along the way, in order to stay on track. They will need to learn to be consistent.
These behaviours are transferrable to other areas of their life. Not only this, but they’re practicing paying with cash, over credit.
Being bailed out by a parent may not be the same as obtaining credit, but there’s a similarity in that it’s ‘easy money’.
Goal Setting
Saving for a car requires setting a goal, and creating a plan to achieve it. What a great experience for your child! It’s also something you can help them with. On the other hand, if you make the purchase for them, it’s a missed opportunity.
RELATED POST: 35 Kick-Ass Ways To Improve Your Finances In 2019
THE MYSTERY MONEY APPROACH
When my son got his first job last fall, he decided that he wanted a car. My initial reaction was to encourage him to hold off. After all, new or used cars are expensive.
If you don’t absolutely need one, why bother? He has the same access to the family vehicle that I had when I was his age.
One thing I’ve learned, however, is the importance of allowing him to make his own decisions about money. Relinquishing some parental control is important as my son nears adulthood.
After all, he’s worked hard to earn this money, he’s old enough to decide how to spend it.
Rewarding Good Behaviour
My son knew he would have to save his own money for a car. We set that expectation a while back. Regardless, his mom and I still intended to reward him for the hard work he put in to reach his goal.
A couple of months ago, while we were driving, he mentioned that he’d almost saved enough money. He was a bit frustrated as he hadn’t been getting many hours at work, which had slowed his progress somewhat.
In that moment, I let him know that I was very proud of how dedicated he had been to save, and that his mom and I had decided to give him $500 upon reaching his goal.
The look on his face said a lot. It was a mixture of relief, encouragement, and sheer gratitude.
The gesture also seemed to spur him on. He’s now well past his savings goal, and actively shopping for a set of wheels.
He actually purchased an older Honda Accord a few weeks ago, but the dealer didn’t disclose a couple of things that he needed to, so we ended up taking it back, and the search continues.
Are you a college student, and in the market for a car? If so, you’ll need car insurance. If you’re not sure how to go about choosing the right plan, my friends over at The Simple Dollar have you covered. They’ve created a car insurance guide, specifically for students. Check it out today!
The Simple Dollar – Student Guide To Car Insurance
SUMMARY
By giving your kids the responsibility of saving their own money for their first car, you’re creating the opportunity for them to learn valuable money lessons that will stay with them for life.
The process of saving for a car has taught my son so much about managing money. It’s forced him to make smart spending choices over and over again, while keeping his long term goals in mind. He made a couple of mistakes along the way, but has learned a lot from them.
He’s begun contributing to his college savings plan and automated other savings into a stock trading account I manage on his behalf. He’s started budgeting regularly and is tracking his spending closely.
***Update 7/29/18***
A year has gone by since my son bought his first car. In the meantime, this article has become one of the most read posts on the blog.
Because of this, I’ve written a new post titled, Helping Your Child Buy a First Car” to expand on the topic a bit further. I’d love for you check it out!
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MYSTERY MONEY MAN – MONEY ADVICE FOR FAMILIES
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It sounds like you handled this situation really well! Our son is 2 years old so we have awhile before tackling this one, but I like the idea of delaying and not out right purchasing a car for him.
In my family, we had a third car when I could drive but it was not “mine”. I was allowed to use it to drive my younger brother and I to/from school and school activities (sports, clubs, etc). If I wanted it beyond that, I needed to ask. When my brother was old enough to drive, we still only had 1 “kid car” so we had to share and get creative on how to manage our rides (yes, I was dropped off and picked up at a bar by my younger brother during college Christmas break… super cool, huh?).
We figured out how to share rides, I would carpool to work with dad some days or get a ride with a friend other days. It all worked out and was a lot of fun in hindsight! I purchased my first official car when I graduated college and was living away from home full time for the first time, which was an exciting step into young adulthood for me!
Thanks for reading, AR! That’s something I didn’t address in my post, but I know many families have that extra vehicle kicking around that the kids are able to use, and often parent’s will gift a car to their children. I think it’s a preferred option to anyone having to buy a vehicle. There are certainly other ways parents can then teach their kids financial literacy. Like you, I didn’t own my own car until I graduated from college, but I still remember that feeling of independence it gave me, it was awesome! : )
Growing up, nothing terrified my (very neurotic) parents more than the thought of me behind the wheel. Now that I am a parent (and forever tainted by my parents’ anxieties) the very thought of my sons having a license (let alone car) fills me with sheer terror. lol! But aside from the irrational (to a degree) fear, and while I understand what the independence of owning a car means to a kid, it’s hard for me to wrap my head around a high schooler needing something as expensive as their own car. Granted, I remember being chaperoned around a lot by my mom, which is no fun for a parent, or by my one friend who had a car. But usually I was borrowing my mom’s car, which was fine. Of course, I live in a transit-focused city, so my whole perspective is very skewed by that. I sometimes think that, subconsciously, it is the only reason I stay in the city, imagining my teen sons cabbing it or taking the train home after questionable behavior. But to your whole point in the first place, definitely the kid should save up for the car. So bravo. It’s such a huge responsibility that I think there needs to be some sort of exercise in maturity, a mental threshold to pass to help them understand both the financial and safety responsibilities that they are now being entrusted with. There’s a reason it costs a lot to insure teenagers. They are hardwired to engage in risky behavior. A little practice in restraint, which is necessary to save money, may help prepare them to tap in to their adult brain.
Linda, the day my son passed his road test, he took off to the city to meet a friend, and go to the mall. Seeing him drive off (in a bit of a snowstorm) was nerve-wracking to say the least. My wife looked at me and said, “you’re not really going to let him do this, are you?”, and I mustered as much confidence as I could in reassuring her it would be ok, although I was definitely not feeling that way inside. I knew I had to give him the opportunity, but I certainly didn’t feel like it. I believe that by placing the responsibility on our son for certain financial commitments (cell phone, car) it’s helping him become more mature. Neither are absolute necessities, but they are still catalysts for personal growth. On another note, I was reading the other day about the repairs to Penn Station, and the resulting chaos it’s causing. I hope it hasn’t been too terrible for you. : )
My parents did buy me my first car but not until I was in university. Before that I did have access to my mom’s car fairly regularly but we had a pretty poor transit system and getting to university was going to be a challenge without a vehicle. It wasn’t anything fancy but it got me where I needed to go, and I don’t think it set me back with how I valued money. I worked part-time all through high school and university, and full time in the summer, and was always a good saver.
There’s no right or wrong answer and I think you treated the situation with your son perfectly. I don’t have kids so I’m not sure what I would do, it would depend a lot on the kid, where we lived and if I could afford it.
Hey Sarah! You bring up some great points. In the case of my son, he’s closer to the beginning of his financial journey and education, so I think these lessons are more pressing for a kid his age. And you’re right, there are so many other factors, such as location, etc. I know that I had to commute to university during my first year as well, and had my mom not been so thrifty with her car usage, my parents may have had to include a car in my school expenses.
Great article!
I firmly believe buying a car for a teenager is bad decision. It sends them the wrong message.
One of the best things my dad said to me when I was 15 was, “If you want a car, get a job.” I started bagging groceries and putting every dollar towards that car. In retrospect, I wish there was some more money discussion, but I don’t regret the early lesson on working hard for what you want. Essentially, I worked throughout high school to keep that car on the road, but that was my choice and my effort.
When my oldest daughter was at the age of driving, I gave her a more in-depth conversation (i still hadn’t had my financial awakening, but understood this concept). I said if she wanted a car, here’s what it would cost. We walked through not only the initial cost, but the gas, the upkeep, tires, etc. Her eyes grew so big. She finally said, “I’ll ride the bus and get rides from friends.” She had a job, but wanted to buy clothes with her paycheck more than she wanted to get a car. Still not the best money decision, but at least she knew going in what she was facing.
Thanks for sharing Colin, I love it! It’s good that your daughter had the sense to prioritize, she would have saved some money for sure. Another item that we have set some firm boundaries around is cellphones. We’ve told our kids no cellphones until they are working and can pay the bill themselves. Our middle daughter is in that zone where she’s not quite ready for an after school job (she babysits periodically), yet she would love a phone. She’s going to have to wait, but she’ll be better off for it in the long run. 🙂
Really love your approach! Giving your kids the chance to make their own choices, but encouraging them to practice delayed gratification as well. And reward them when they succeed! LOVE IT.
My parents paid for my first car, but looking back I wish they hadn’t.
Thanks for reading Lance! I have to admit, we don’t always strike the perfect balance between maintaining control and letting go, but we do try to encourage self discovery with our kids, as I feel it’s the most effective learning environment. There are times though when I resort to a whole lot more telling, and less listening, haha! : )
Like the way you handled the situation. I think this problem have more aspects. I agree with you on the financial factor, I would not go further in help than a little contribution. But if this is what she really wants then who am I to forbid what to do with her hardly earned money. The only exception would be if the purchase could be rationalized by the circumstances (ie. no other option for transportation for a specific reason of education or work). On the logical side I grew up in a single car family and when I got my license at 21 we shared the car with my father and we never had a problem in terms of schedule. This makes me believe that this is what we should aim for. On the security side I don’t think that teenagers should drive at all. In our country they can not until the age of 18. Sometimes I feel even this age too young for that. Maybe the loss of a close family member at the age of 19 in an accident speaks from me, but the idea of seeing my daughters behind the wheel terrifies me. Fortunately as my daughters are very young now I have a couple of years to work on my mindset.
Hey Peter, I love the points you make here! I do believe that aiming to be a single car family is a good thing. Buying a 2nd vehicle adds a lot of expense. We got by with one vehicle for many years, but are a 2 car family now. If I worked closer to home, I would definitely go back to having one car, but it would be difficult for us to manage schedule wise in our current situation. If I had my way, I would likely raise the driving age as well, to 18, of course I wouldn’t have said that when I was getting my license, haha. But driving is a HUGE responsibility, and it’s also a skill that takes some real practice in order to become proficient. As far as preparing yourself for seeing your daughters behind the As your children become more independent, you really do have to force yourself to let go in some situations, although its the last thing you feel like doing. Not easy. : )
It was SOOO annoying when parents of our sons’ friends bought them cars out-right. Luckily, they knew that just because Johnny got an almost-new Jeep from his mom and dad, didn’t mean we were buying one for them. We talked about it as soon as they got their learner’s permit (around 15). If they wanted wheels, they had to get a job and pay for it. As an incentive, we would help by paying roughly half, but we needed to work together on the shopping experience and agree on the car ultimately chosen. This worked out rather well and each of our son’s took quite a bit of initiative in learning the used-car market on their own and then we solidified the learning with visiting a number of the potential car lots before narrowing it down. Our decision to fund roughly half was based on the desire to have reliable wheels for them to get to and from work and also from college the following year. Walking or taking the bus to work was not an option for where we live and where their respective jobs are in terms of distance and the type of roads involved. While they saved, they had to borrow mom and dad’s car when it was available.
As far as insurance and repairs go. They each pay towards their insurance costs and are responsible for 100% of any repairs, gas money, etc. for the cars. So far, one has needed an $800 repair for an oil leak, and about $180 to fix an issue with his tires. The other one, nothing so far – hope that trend continues.
Thanks for stopping by, Mrs. N2S! You mention a really important thing, being involved in the shopping experience. It’s not only the financial side of things that can provide important lessons, but the actual process of locating and purchasing a suitable car. There is definitely a lot to know, and also a lot that can go wrong if you’re not careful. Great advice!
As a driver of a now 14 year old car and a new dad I’m hoping by the time I buy my next car that it is one my son can grow into by the time he’s ready to drive in 16 years. We’ll probably put 100 – 200k miles on it and it wouldn’t be worth much as a trade in so if it’s still safe and been well maintained I would feel totally comfortable passing it down to him.
Buying him a car outright on the other hand. No way. I managed just fine driving our family’s old minivan through my teenage years.
Hey Derek, I hear you! I had a car I would have loved to pass down to my son. It was a Corolla I owned for 11 years, and it ran so well, unfortunately it didn’t quite make it long enough…it was written off :). Oh well.
We are going through this right now! My son just got his license and started a summer job. Right now, we are paying for the cost of adding him onto our insurance, but if he chooses to buy a car, he’ll be responsible for the difference. I created a spreadsheet he can use to input his income over the summer, as well as the costs of saving for insurance and oil changes over the school year. He has lofty goals for what kind of car he’d like to afford and hasn’t run the numbers yet because he knows it won’t pencil out for his ideals. When he does take the time to finalize the numbers and start saving (he’s still a week out from his first paycheck), he’ll have some surprises in store. We plan to help with the title/licensing costs and provide some extra money toward his purchase price… much like you did for your son. He has saved to buy his own TV for his room, a fancy computer desk, and a guitar in the past, so I feel confident he’ll be able to make his goals if he really wants to tackle it now that he is more aware of all the costs involved. And, I totally can relate to the terror of it. Knowing how likely young men are to be hurt due to driving is a scary thing.
That’s very interesting about the insurance Melanie. Where we live, there is no increase in cost for additional drivers, so my son will only pay insurance when he buys a vehicle. Also, we are permitted to insure his car under myself or my wife, which will keep his costs very low. So we would be listed as the registered owner of the vehicle, and he would pay us each month. It’s a pretty flexible system. Sounds like your son is a pretty motivated saver, now that he’s working he’ll get there before you know it!
I knew you and I would probably be on the same page for this.
If our kids want to share the family car, they can do that for free. If they want their own, it’s incredibly likely they’ll be buying it for themselves. That said, I’ll be encouraging them to think as a team and see if they want to share ownership rather than the insanity of adding three cars to our household 🙂
I’m also hoping to encourage mustachian transportation as the primary form so driving is a minimum.
Sounds like your son learned a lot form the experience and is really well set up for future expenses that will come up. This should be a proud dad moment for you!
Ha, it doesn’t surprise me either. : ) We’re so ok with the kids just using one of our 2 family vehicles, and I do cringe at the thought of adding a third with my son’s impending purchase. We were a one car family for 10 years but because I work about 35 miles from home with no transit option, it became very difficult to juggle as the kids got older and more active after school sports etc. Now that he’s buying his own, we have thought about going back down to one car, as I know he would be willing to help out in a pinch. I’m going to play that one by ear.
I used a car decision in a different approach to have my kids consider a bigger financial decision towards college. The offer i gave them was if they commuted to college I would buy them a car however the title would stay in my name until they graduated. If they decided to drop out then I would sell the car. All my children opted to commute and after the expense of the car plus annual costs we estimated it saved $32K if they went to an instate school and ~$70K if they went to an out of state school.
Hey Ken! Very creative way to get your kids buy in, I like it! And everyone benefits. : )
It’s situational really, sure having them work for it is good for work ethic and all but if you live out in the middle of nowhere there just isn’t any where for them to actually work.
Hey Gabriel, thanks for stopping by! I had a few people share something similar, that living in a rural area can make it more difficult to find work, thus the need for a car for that purpose alone, which I completely understand.
Ok so here is the thing. I will get a car in the near future but They want me to cover for insurance. So i though, what if we got a really cheap car and they could use the rest of that money for gas and insurance. I do agree that teaching me that saving money is good and all but, I have already held 2 jobs and saved up enough money to buy a computer that could possible cover the insurance. I think that I already learned that lesson. Most of my games, systems, parts, cords, chargers, etc. I have both saved up for, and bought myself. So what do you think?
Hey Matthew! While I would need a bit more information to fully understand your situation (or your parents position), here are a few thoughts.
First of all, I think it’s great that you are willing to sacrifice a more expensive car in order to save money, but I’m wondering if your parents want to spend a bit more to get a better car to make sure it’s safe and reliable for you?
Also, is it possible that your parents see a benefit in you covering regular operating costs, such as gas and insurance, so that you can get used to budgeting for regular expenses?
I think that having the discipline to save up for a purchase (which you clearly have demonstrated) is really important, but it’s also a good practice to have to budget for items on an ongoing basis.
Either way, it sounds like you’ve given this a lot of thought, and you clearly see the value in being smart with money.
Thanks so much for reading, your comment made my day!
My mother and grandparents have recently bought me a car. I live in an extremely rural area between my mother’s and my father’s house meaning that borrowing a car is not practical. I have offered to pay back the car monthly or pay back half of it. I currently work 13 hours a week on top of full time education and volunteer work. My hourly rate is roughly £5.30 and hour. My mother declined the offer and, after reading this post and other websites I feel that maybe I should have saved up as now I’m just spoilt. I really appreciate the car and doubtlessly have offered to pay it back but they decline. Does this mean that I’m spoilt? Should I have refused the car?
Hi Callie, Thank you SO much for reading, and for your very thoughtful comment. I would say that you should absolutely not feel bad about accepting the gift from your family. I wrote this post, as I often do, for parents who are looking for ways to teach their kids about how to manage money, become responsible adults. I see ‘a first car’ as an opportunity for parents to teach some of these important lessons, but it is certainly not the only way to do that. Just based on what you mentioned about balancing your work, school, and volunteering, it appears as though you’re doing just fine! 🙂 Thanks again for stopping by!
So my older brother wants to sell me his car for $800 it’s a manual Mazda 3 hatchback 2007 everything is in good condition everything has recently been fixed and my dad said it’s good for the price but we were talking about selling it for more or I just keep the car and we were thinking about selling it as an option cause I would be using it for practice cause I’m 14 and I get my permit in 6 months😬.
But my dad was talking about him buying a new car for himself and I don’t know if we should still get the car for me or I should just say never mind so he can buy his new car and i can pay like some of it but I don’t know what to do right now I need some advice plz.
Hey Ezequiel,
Thanks for sharing! I of course don’t your exact situation, but I’ll give you the same advice I’ve given to my oldest 2 kids, who have now been driving for a few years. From a financial standpoint, owning a car is always going to cost money, whether you buy something new, or used. Once you’ve paid for the car, you still have the insurance, gas, and required maintenance to stay on top of. If it is an option for you to share a vehicle with your brother and/or your father for a couple of years, that might be the best way to go. Even if you’re helping to pay some of the costs, you’ll probably save a lot of money. My son waited about 18 months after getting his license to buy his first car, and my daughter waited about 2 years (she JUST bought her first car a couple of weeks ago) 🙂 They were able to save a lot of money this way.
I hope this is somewhat helpful to you. Good luck in making your decision! 🙂