How to Teach Your Teenager to Save for a Car

As the all-important 16th birthday rolls around, American parents are faced with a major dilemma - the purchase of a car. Many sons and daughters expect a car as a sweet sixteen gift - especially since the tradition has been perpetuated in movies, on television shows, and in songs.  That said, you do not have to buy your son or daughter a sweet sixteen car, and even if you want to, there is something to be said for encouraging him or her to save and pay for some or all of it.  

Below I will outline some ways you can encourage your child to save for a first car.  These guidelines are not just about saving you money; they are about establishing healthy financial habits from which your child will continue to benefit long after this car is gone.

You may be compelled to make the car a big surprise that is unveiled on your kid's 16th birthday, but there are several downsides to doing so.  One of the biggest problems with surprise car gifts to children is that it gives them a skewed sense of reality - that items of great value can simply fall into their laps and are givens in life.  Your teen might also want to be involved in the purchase - and could stand to learn a lot from the intricacies of researching and negotiating the purchase of a car, be it new or used.

It is much better to involve your child with every step of the car purchasing process.  Allow him or her to discuss what kind of car he or she wants, whether it will be new or used, what safety features are important, and how the car will be purchased, insured, and maintained.  Later down the line when your kid is grown and needs to buy another car, all of the know-how collected for this first purchase will really come in handy!

When it comes to paying for the car, I recommend you opt out of paying for the whole thing, even if you can. Having your child assume some of the cost of the car allows him or her to understand the true value of a car and learn that owning a car is a privilege that must be earned.

Here are some potential agreements you might consider making:

• Split the cost 50-50: Agree to pay for half of the car, but insist that your child pay for the other half with money that is earned through an after-school job or summer work
• Require a certain number of hours of work: Agree to buy the car (if you have the means to do so) under the condition that your son or daughter take on part time work and direct all earnings toward a college fund
• Loan your son or daughter the money for a car: But require repayment and interest - this can be a less risky way to teach your son or daughter about debt

If you feel as though you are expected to purchase a car for your son or daughter, but do not have the means to do so without going into debt, STOP.  You do not need to buy a car, and doing so could not only hurt your own financial future, but also your ability to support your family in the future.

Ultimately, a car should only be purchased if you feel that you already have an adequate college fund set up for your child or children, and if your own financial future is in order.  You should never buy a luxury item for a child at the expense of your retirement fund.

When faced with the prospect of not getting a car with no strings attached, many teens will get churlish, if not downright enraged.  Try not to take it personally-  with a narrower view of the world, most kids cannot understand how much damage buying a car when one is not ready can do.  Teens are also liable to be 'difficult' anyway.  It's the hormones.  Nothing personal.

I hope I have inspired you to encourage your kid to assume more responsibility when saving for a car.  Not only do you stand to save considerable money yourself, but you also stand to teach your child valuable financial lessons that will last a lifetime.