Teaching your teenager about financing their first vehicle

It’s time to think about getting your teen a vehicle.

While all of those exciting trips, carpooling your child and 10 of his closest friends to basketball, soccer and football practice will be hard to relinquish, it’s time to let go of the steering wheel.

But getting a new car for your kid, more specifically, paying for a new car, is easier said than done. Rising car prices make it difficult to pay cash, so financing is a frequently used option. Now, is the perfect time to teach your young driver a little about the financial responsibilities of buying and maintaining a vehicle.

The truth is, you can’t wait until your teen needs financing to teach him or her how to get approved for a loan. That means showing them the ropes of money management and establishing good spending habits sooner rather than later.


According to Autotrader, only 22 percent of high school seniors polled claimed they talked to their parents about money management frequently. Autotrader goes on to say that almost 40 percent said they were unsure or unprepared to manage their own banking and personal finances. It’s not a leap to realize that unprepared teens become unprepared adults when it comes to money matters. But there are several ways to use this opportunity as a teachable moment.

Create a budget

Having your teen help you create a budget for the car is a great way to show him or her what it takes to manage money. If your child is under 18 years old, he/she can’t finance a car without a co-signer. But your child can help save for the down payment or agree to pay a portion of the monthly loan payment.

Following a budget requires kids, as well as parents, to think about their spending choices. Developing good budgeting habits gives your kids a better chance of keeping up with a share of the car note.

The importance of credit

The importance of establishing and maintaining good credit cannot be expressed enough, not just for purchasing a vehicle but for other major purchases down the road. Your teen needs to understand how credit scores work and how they can affect your ability to do everything from buying a house to getting a job.

Believe it or not, Autotrader suggests getting your teen a secured credit card or letting them “piggyback” on one of yours. Showing Junior how making on-time monthly payments on revolving credit lines can help establish a good credit score and better buying power in the future.

Share the costs

Nothing teaches the importance of money like having to spend your own. While your teen may not be able to pay the total monthly payment, he or she probably can afford to pay for insurance or gas.

The Money Advice Service says start the practice of giving them regular allowances and not bailing them out when they overspend. Better they learn the hard way now while the amounts are small, rather than later when overspending can lead to problem debt. The Money Advice Service’s research shows that nearly eight in 10 teens 15 to 17 years old who cover unexpected mobile phone expenses from their own pocket say they keep track of their income and spending.

So, no matter what your youngster says, making them put something on the bill is not a form of child abuse. Teaching and modeling the right way to budget and manage expenses will only help your child better understand the value of money and credit.

Educating your teen about financing is important, but educating yourself on the safest cars out there is just as necessary. In our next post, we’ll review some of the safest vehicles for young drivers.