Financial Tips

If you are approaching 16 years old and reading this with your parents, I’m sorry…I’m truly sorry. But by the end of this post, I hope you will agree with me that having your parents give you a car for your 16th birthday is NOT in your best interest. Fat chance?!…Well let’s discuss.

From a young age, it’s important to explain to your children that you will not be giving them a new car on their 16th birthday. If you don’t they will assume there will be a nice red bow on a shiny new car when they turn 16 – because this is what society has come to expect. If you don’t teach them, then the main stream media and the movies will.

(But don’t fret dear 16 year old, there is a plan to get you a car.)

It’s important to start early because you need to give them ample time to come up with a plan to save and earn enough for a car that can get them around. You don’t want them to under-save and end up with a lemon car that gives them bad experiences.

In all honesty, I don’t have teenage children so I don’t have experience with helping my child save for a car (yet). I did however recently have a conversation with a good friend of mine (let’s call him Brian) about how he handled the car situation with his teen. I thought it was very well done, so I will share.

When Brian’s daughter was 14 (let’s call her Angie) he had a sit-down with her and explained (as he had for several years) that he was not going to be purchasing her a car on her 16th birthday. He explained that he and Angie’s mom would implement a “Car-Matching” system. For every dollar his daughter saved for her car, she would get a dollar-for-dollar match from her parents. If she saved $1,000 she could get a $2,000 car, if she saved $5,000 she could get a $10,000 car, etc. Brian also explained that there was a $20,000 cap on the total car purchase – as he didn’t want to finance a brand new Corvette!

Angie was excited. She worked diligently for the next two years. She did a lot of babysitting and other jobs. She even found a full-time summer job while she was out of school. The cash started piling up.

When she approached her 16th birthday she had saved almost $5,000! This was a huge accomplishment for her. She looked back on the last 2 years with great satisfaction and pride in knowing that she had set a huge goal and accomplished it.
Brian and Angie did a lot of research on cars, including price comparisons and test drives. They also took several cars they were interested in to their mechanic.

Angie finally found the car she wanted…a used Toyota Corolla. It was perfect for her needs and a very good looking car. Angie is still driving this car to this day and plans to keep it throughout her college years. She has kept it in great shape and treats it with respect.

So I tell this story because everyone understands that if you work for something you take better care of it. This was the case with Angie, and this will be the case with your teen. But there were several other great learning experiences that came from Angie’s experience:

She learned the importance of delayed gratification. Today’s teens experience instant gratification with almost everything – instant messaging, fast food, ask siri, snap chatting, etc. Delayed gratification is PARAMOUNT in teaching our kids about money. Because as you know, there are plenty of ways to get into trouble using instant gratification and money.
She learned how to make a purchase. Negotiation is a skill that is learned, and teens get very few chances to learn this skill. She was able to do her homework, test her alternatives, and negotiate the best deal for her – using HER OWN MONEY. She learned that the person with the most information wins every negotiation.
She accomplished something she didn’t think she could do. Two years ago there was no way she would have believed she could save $5,000! Getting teens to accomplish things they didn’t think they could do prepares them for college and other hard things in life.
She learned how to save for retirement. Did the “Car-Matching” seem familiar to any of you? It is very similar to many 401k retirement plans offered by employers. Although slightly different, the principles are the same and can help your teen learn the power of matching contributions.
She learned how to pay cash for things. I’ve seen several families take out a loan for their teen’s car. What kind of lesson is this teaching our child with their first really big purchase? Whether or not the parent or child pays the loan payments, it’s sending the wrong message – if you want something now…get a loan for it.
Now a lot of your teens may be involved with sports, student government, dance, etc. I understand that these activities take a lot of time and usually make it difficult for your children to earn their own money. I played 3 sports in high school, so I understand the time commitment.

Use your best judgment in these situations. Maybe you do a 2 to 1 match, or have them earn money doing chores around the house. Each child is different, so you may need to adapt the match for each child.

Growing up all of my siblings and I had a deal with my parents similar to Brian’s. My deal was different from my younger brother’s who was coming home to his Playstation every day after school. Make sure and tailor each child’s deal to have equality with their extra-curriculars.

There are many other lessons that can be learned by your teen. For many parents (including myself), it’s not about the money. It’s about teaching life lessons that can prepare our kids for adulthood.

So as your teen is approaching that sweet 16, don’t think of the car as simply a way for them to get from point A to point B. Think of it as a way to help teach and prepare them for adulthood.

Leave a Reply

Your email address will not be published. Required fields are marked *