Five Steps to Finding Your Teen’s First Car

Getting his first car marks a major rite-of-passage in a 16-year-old’s life. For your teen, the car symbolizes independence, and it confers adult responsibility. For you, the anxiety you feel as your new motorist rolls out of the driveway counts as the first symptom of “empty nest syndrome". Most importantly, though, how you manage acquisition of your teen’s first car will determine the quality and conduct of all business between you and your adult child. Therefore, seize this opportunity to teach your “emerging adult” all about prudence, practicality and patience. Follow five proven steps to intelligent first-auto acquisition:

• Talk before you shop.
  Your son wants a Porsche 911; your daughter wants a Mustang ragtop. You think a heavily armored vehicle would work well. Bring both sides to the table, clearly establish your desires and expectations, and get down to serious negotiation. Some of the safest, most fuel efficient, best equipped and most reliable cars also number among the coolest, so that compromise will not be as elusive as you imagine. Focus on “safe,” because it means “smaller engine, easier handling, greater visibility, more safety equipment and better crash test ratings. “Safe” also translates to lower insurance premiums. Sometimes, though, “safe” defies common sense: Despite its size, weight, and height, a Ford Escape poses more hazards for your newly licensed driver than a Honda Civic or Toyota Corolla.
• Follow the formulas for cost and operation.
  Auto lenders set the reasonable cost of car ownership at no more than 12 percent of your monthly gross income. If you already make payments on two family cars, adding a third monthly payment will ravage your income-to-debt ratios. Therefore, do not buy a new car for your new driver. Stipulate “used cars only.” Over half of young drivers have accidents in the first year after receiving their licenses, sending their already high insurance rates off the top of the charts. Moreover, new cars lose 40 percent of their value the minute they leave the dealership. Similarly refuse to consider leasing a new car. A lease substantially reduces your monthly payment, but you have no equity in the vehicle when the lease expires, and you risk paying at least 10 cents per mile in excess mileage charges.
• Buy the car outright.
  Of course, financing adds several thousand dollars to the car’s actual purchase price. At current loan rates, interest charges add between 8 and 12 cents per mile to the $1.50 you pay in regular operating costs. If your teen drives only 20 miles per day, finance charges add $1200 to the annual cost of driving. More importantly, when you finance a car, the lender requires comprehensive and collision insurance; most lenders also set limits on your deductibles. You probably will carry collision insurance anyway, but you do not need comprehensive coverage. You probably can increase your deductibles from $500 to $1000, saving approximately 10 percent on your premiums.
• Shop online before you visit a dealer.
  You and your teen will focus on very different features in the cars you seriously consider. Not surprisingly, your teen will focus on the sound system, iPod connections, and everything about style and “roll-up appeal.” You will focus on durability, reliability, ease and cost of repair, theft rates, resale value, acceleration, maneuverability, roll-over risk and a long list of practical concerns. Your views complement one another. Therefore, you will know you have “the one” when everybody feels satisfied. Shop virtually until you identify “the one.” Then, find the lowest priced real-world version of your mutual favorite.
• Strategically reduce insurance costs.
  Higher grade point averages mean lower insurance rates. Refuse to purchase the car until your teen’s grade average reaches 3.0. Fewer miles convert to fewer dollars for insurance. Unless your teen commutes long distances to school and work, agree to annual mileage limits. More training means more savings. Have your B-average scholar complete an advanced defensive driving course. Talk to your insurance agent about other cost-saving measures. Also keep in mind your credit score may influence your insurance premium. Either act aggressively to raise your score, or work with a carrier that does not factor credit-worthiness into its rates.

Dealers and insurance carriers dominate discussions of teens’ first cars, but parenting experts weigh-in, too. Developmental psychologists remind parents that older adolescents devalue achievements and acquisitions that come too easily, and they cherish those things that come at the cost of much money and great effort. Therefore, encouraging strong values and healthy self-esteem, many parents require their new motorists to put-up half of the car’s purchase price or to repay the money they spend on the car. Some studies suggest that when a teen invests his own money in a car, he is far less likely to collect tickets or crash.

You and your teen are about to pass a major life milestone. Slow down, learn from and enjoy the ride.

Guest author Patricia White is a freelance blogger and is writing on behalf of www.carinsurance.org.uk.

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