Think your teen can afford a car? Before they start shopping, make sure they understand that the purchase price is only the beginning. Gas, insurance, maintenance, repairs, and unexpected expenses can add up quickly. This is one you'll want to forward to your teen! Not because they should necessarily pay for everything, but because they need to understand the costs and work with you to decide which expenses they'll cover and how they'll earn the money to pay for them. When teens have some financial responsibility for their cars, they're more likely to take good care of them and think carefully about their decisions.
In our family, we chose to contribute to the purchase of our kids' cars so they could drive reliable vehicles. My husband (our designated mechanic) traveled too frequently to be available for roadside repairs! In exchange, our kids were responsible for 100% of their gas and insurance costs. To help offset those expenses, I offered a $10 credit for every errand they ran for me. Suddenly, instead of begging them to run errands, I had willing volunteers!
Every family's arrangement will look different. The important thing is to establish expectations before the keys are handed over and help your teen make a realistic plan for paying their share.
Car Insurance: The Expense You Can’t Avoid
Car insurance is one of the biggest expenses teen drivers face, and it can be a shock to discover just how much it costs. Car insurance helps pay for damage and injuries resulting from accidents. Insurance companies charge young drivers more because they have less experience behind the wheel and are statistically more likely to be involved in accidents. Even if you're an excellent driver, your age alone can make insurance expensive.
Most teens are added to their parents' existing car insurance policy rather than purchasing their own. This means your parents' insurance company will charge them more to include you as a driver. The type of car you choose can also affect the price, so once you've narrowed down your choices, ask for estimates on those specific vehicles.
I'm going to introduce some basic car insurance concepts here, not explain all the details of how insurance works. The goal is to help you become familiar with the terms so you can have an informed conversation with your parents and their insurance agent.
Types of Coverage
Car insurance is a broad category that includes several types of insurance, each designed to help pay for different expenses when something goes wrong.
Liability insurance: This is the coverage most states require. If you cause an accident, it helps pay for injuries to other people and damage to their property. It does not pay to repair your own car. States set minimum coverage amounts, but those minimums may not be enough to cover a serious accident.
Collision insurance: This helps pay to repair or replace your car if you hit another vehicle or object, even if the accident is your fault. Imagine accidentally backing into a pole and causing $3,000 in damage. Without collision coverage, you could be responsible for the entire repair bill.
Comprehensive insurance: This helps cover damage to your car from things other than collisions, such as theft, hail, falling trees, or vandalism. If a storm damages your car, comprehensive coverage may help pay for repairs.
Uninsured/underinsured motorist coverage: This helps protect you if another driver causes an accident but has no insurance or not enough insurance to cover the damage. Some states require this coverage, while others make it optional.
Medical payments or personal injury protection: Depending on your state, these coverages can help pay medical expenses for you or your passengers after an accident. Some states require one of these coverages.
Although liability insurance is the most common legal requirement, other coverages may also be required depending on your state.
Remember, insurance costs can change. A speeding ticket or an accident you cause can increase your family's insurance bill, sometimes for years. Talk with your parents about who will pay those increases and any damage insurance doesn't cover. (Hint: If you're responsible for the mistake, you should be responsible for the bill, too!)
Give your kids the chance to practice making financial decisions while the stakes are still small.
Explore our hands-on financial literacy programs for ages 8+. 👆
Gas: The Cost of Going Places
Having a car means the freedom to go where you want, when you want. But every trip costs money, whether you're driving to school, work, practice, or just meeting friends. And those trips can add up faster than you think!
How much you'll spend on gas depends on three things: how many miles you drive, how many miles your car can travel on a gallon of gas (MPG), and the price of gas.
Let's say you drive 600 miles a month and gas costs $3.50 per gallon (gas prices have been well above this number lately!). Here's how much the fuel efficiency of your car can affect your budget:
Let's say you drive 600 miles a month and gas costs $3.50 per gallon. If your car gets 20 MPG, you'll spend about $105 a month on gas. But if you drive a car that gets 35 MPG, you'll spend only $60 a month. That's a savings of $540 a year, even though you're driving exactly the same distance!
Before choosing a car, look up its estimated gas mileage. You can find this information at FuelEconomy.gov, a government website that lets you compare vehicles. Keep in mind that your actual mileage will depend on how and where you drive.
And don't forget that driving habits matter. Extra trips, long drives to visit friends, and offering to drive everyone around can increase your gas bill. It's easy to say yes to being the driver when you're not thinking about what each trip costs.
Maintenance & Repairs: Keeping Your Car on the Road
Buying a car is one thing. Keeping it running is another! Cars need regular maintenance, and even well-maintained cars eventually need repairs. Some expenses you can plan for, while others will catch you completely by surprise.
Here are some of the expenses you should expect:
Oil changes: Your engine needs clean oil to run properly. Your owner's manual will tell you how often it needs changing.
Tires: Tires wear out and eventually need replacing. A new set can cost several hundred dollars or more.
Brakes: Brake pads wear down over time. Ignoring them can lead to more expensive repairs.
Batteries: Most car batteries last three to five years before needing replacement.
Unexpected repairs: A failed alternator, broken air conditioner, or transmission problem can result in a repair bill of hundreds or even thousands of dollars.
An older car might be cheaper to buy, but it could require more frequent repairs. A newer, more reliable car might cost more upfront but save you money over time. That's why the cheapest car isn't always the least expensive car to own.
Here's the challenge: These expenses don't arrive neatly every month. You might go six months without spending anything and then suddenly need $700 for new tires. That's why you should set aside money every month for maintenance and repairs, even when your car is running perfectly.
Don’t Forget the Other Expenses
Taxes and fees are some of the hardest car expenses to estimate because the rules and costs vary from state to state. However, most car owners will encounter at least some of these expenses, so it's important to know what applies where you live.
Sales tax: Depending on where you live, you may owe sales tax or a similar vehicle purchase tax. Many states collect it when you register the car, even if you bought it from a private seller. This can add hundreds or even thousands of dollars to the cost of your car.
Property tax: Some states and local governments charge an annual property tax based on the value of your car. This is an expense you'll need to budget for every year.
Registration and inspection fees: Registering your car is mandatory, and you'll typically need to renew your registration annually. Many states also require vehicle inspections, often annually, which come with additional fees.
Other expenses: Parking fees, toll roads, and car washes might seem minor, but they can add up over time.
Before You Start Shopping
Now that you know what owning a car really costs, it's time to make a plan. Before you start looking at cars, sit down with your parents and figure out what you can actually afford.
Start by deciding which expenses your parents will cover and which ones will be your responsibility. Then estimate how much you'll need each month for gas, insurance, and maintenance. Don't forget to account for annual taxes and fees, along with some savings for unexpected repairs.
Next, figure out how many hours you'll need to work to cover your share. If you're responsible for $200 a month in car expenses and earn $15 an hour, you'll take home approximately $12.75 an hour after taxes (assuming 15% is withheld). That means you'll need to work about 16 hours a month, or four hours every week, just to pay for your car. Is that realistic with your schoolwork and other commitments? And will you still have money left for savings and other things you want to do?
Finally, use those numbers to help determine which cars fit your budget. A car that costs less to purchase isn't necessarily cheaper to own. Insurance premiums, gas mileage, and potential repairs should all factor into your decision.
The best time to figure out whether you can afford a car is before you fall in love with one. A little planning now can help you enjoy the freedom of driving without the financial stress that comes from being unprepared.
Frequently Asked Questions:
How much does it cost a teenager to own a car each month?
The monthly cost of owning a car depends on the vehicle, where you live, and how much you drive. Expenses include insurance, gas, maintenance, and money set aside for unexpected repairs. You'll also need to account for annual taxes and registration fees. Before buying a car, estimate these expenses and determine which ones you and your parents will each pay.Why is car insurance so expensive for teenage drivers?
Car insurance is more expensive for teenagers because they have less driving experience and are statistically more likely to be involved in accidents. Insurance rates also depend on the type of car, where you live, and the coverage you choose. Before purchasing a vehicle, ask your parents' insurance agent how much it will cost to add you as a driver and insure the specific car you're considering.What hidden costs should teens consider before buying their first car?
Beyond the purchase price, teens should plan for insurance, gas, oil changes, tires, brakes, batteries, unexpected repairs, taxes, registration, and required inspections. Some expenses occur monthly, while others come only once a year or without warning. The best way to prepare is to create a budget with your parents, decide who will pay each expense, and make sure you can earn enough money to cover your share.
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