What Every Teen Needs To Know About Owning a Car

Educate your teenager about the true cost of car ownership

Woman in car passenger seat teaches teenager to drive
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Kentaroo Tryman / Getty Images

For a teenager, getting a driver’s license means independence, but for many parents, it can mean seemingly endless hours of worry. Parents often try to prepare their kids safely for the road by sending them to driver’s education classes or giving one-on-one instruction.

But does your teen understand the costs of owning a car? They may have a front-row seat to the frustrations of your own car ownership experience. However, like the hassle of getting repairs after an accident, they probably don’t know the amount of money you routinely pay each month to keep your vehicle on the road.

Parents and guardians need to start educating their kids about car ownership costs before they start driving. Teaching them the ins and outs of automobile expenses now can help them make wise choices once they leave the nest.

Key Takeaways

  • Choosing the right car can have an impact on other costs, like insurance premiums and maintenance expenses.
  • Teen drivers can prepare for routine maintenance and unexpected repair costs by creating a dedicated fund and contributing to it monthly.
  • Some costs, such as gas, property taxes, and registration fees, recur as long as you own a vehicle.

Look Past the Price Tag

As experienced car owners, parents know the actual cost of automobile ownership, but their teenagers often are just driven by their desire to get behind the wheel.

The sticker price of a vehicle is just the beginning of its future expenses. Taxes and registration fees can take a bite out of your wallet, and you can’t legally drive off the lot before buying car insurance. Within a few months, the car will need an oil change or tuneup—and, down the line, brake repairs and tire replacements. Your teen might also need to pay for parking at times.

Car loans require paying interest, and a new set of wheels will start depreciating from Day One. Gas prices can increase without warning, and insurance rates can skyrocket following a collision or traffic violation. 

The True Cost of Car Ownership

When discussing the full cost of car ownership with your teenager, you might not know where to start. Here are a few of the main costs that your child needs to understand before buying or operating an automobile.

Insurance

If your teenager just started driving, you’ll likely get a better insurance rate by adding them to your existing policy, rather than opting for a new standalone policy. When adding a young driver to your auto insurance policy, expect a rate increase, because teen drivers pose an increased risk for insurers. According to the Centers for Disease Control and Prevention (CDC), drivers aged 16 to 19 pose the highest risk of being in automobile accidents.

Teen drivers should understand insurance costs and how traffic accidents and violations can cause rate increases. According to the Rocky Mountain Insurance Information Association, if a newly licensed male teenager gets a single speeding ticket, it may lead to a rate increase of nearly 10% and one accident. One ticket for that same young driver can trigger a rate hike of around 140%.

Almost every state requires minimum levels of auto insurance, and the types of mandatory coverages vary by location. For example, all Massachusetts car owners must carry at least:

  • $20,000 in bodily injury liability coverage per person
  • $40,000 in bodily injury liability coverage per accident
  • $5,000 in property damage liability per accident
  • $8,000 in Personal Injury Protection (PIP) coverage
  • Uninsured motorist coverage

Explain what each type of insurance covers, what it doesn’t cover, and how deductibles work for coverages such as collision and comprehensive insurance. Teens should also understand that certain types of vehicles cost more to insure than others.

The Insurance Institute for Highway Safety (IIHS) tracks insurance losses based on automobile makes and models. It publishes this data, which can help you decide which type of car to buy for your teenager.

If you finance an automobile, most lenders will require you to buy collision and comprehensive insurance in addition to state-required coverages.

Gas

Educate your teen on the cost of fuel, how its price can fluctuate, and ways to avoid spending too much money at the pump. According to the U.S. Energy Information Administration, the price of a gallon of gasoline increased from $2.42 in January 2021 to $3.27 in September 2021, a 35% increase.

Gasoline expenditure for every car depends on mileage and the type of automobile. According to the American Automobile Association’s (AAA) “Your Driving Costs 2021” report, fuel costs for a small sedan run around 6.84 cents per mile, while gas for a midsize pickup truck costs 11.64 cents per mile. If a teenage driver with a midsize truck drives 10,000 miles per year, they can expect to spend around $1,164 annually on gasoline, depending on the cost per gallon.

Taxes and Fees

According to the 2021 AAA study, license and registration fees and taxes run around $421 per year for a small sedan and $715 for a midsize pickup. Registering a new car valued at $20,000 in San Francisco, California, would cost $2,019, comprising $1,700 in sales tax and $319 in registration fees.

Annual property taxes on vehicles are based on their market value, according to the Institute on Taxation and Economic Policy. So if a vehicle has a market value of $15,000, for example, and the property tax rate in your county is 1.18%, you’d pay a $177 tax bill. As the car depreciates, its taxable value decreases, as does its market value.

Interest

According to the U.S. Federal Reserve, in the third quarter of 2021, interest rates averaged 5.14% for a 48-month new car loan and 4.6% for a 60-month loan. If you purchase a vehicle for $20,000 and finance it for five years at an interest rate of 4.6%, you’ll pay $2,440 in interest. Encourage your teen to save money to pay cash for their first car and to shop for safe, dependable used vehicles.

The IIHS and Consumer Reports publish an annual study of automobiles that they deem safe for teenage drivers, many of which you can find used for less than $10,000.

Repairs and Maintenance

According to AAA, maintenance costs run about 8.83 cents per mile for a small sedan and 9.94 cents for a midsize pickup. So if your teen drives 10,000 miles per year, maintenance costs will run around $883 for the sedan and $994 for the pickup.

Teach your teenager about routine maintenance costs, such as tuneups and oil changes, as well as the expense of keeping an older vehicle on the road as major parts begin to fail. According to the Kelley Blue Book, an oil change runs around $35 to $75 and is necessary every 7,500 to 15,000 miles for newer automobiles. But as a car ages, you’ll have to replace parts such as an alternator, which can cost up to $600 for parts and labor.

On its website, AAA features a car repair calculator, which provides average costs in your area for specific repairs.

Keep a Fund for Emergency Repairs

Encourage your young driver to start a fund for car repairs. Have them set aside at least $50 per month to cover routine maintenance, like oil changes, and major repairs, such as brake replacements, as suggested by AAA. It’s important to only use the fund for auto repairs, allowing unused money to accumulate.

As a vehicle ages, it could require more major repairs. When it no longer makes good financial sense to repair an old automobile, your child can use accumulated maintenance funds to make a down payment on a new ride.

Frequently Asked Questions (FAQs)

How long does it take for teen car insurance rates to drop?

Typically, drivers receive better rates at around age 25, but some young drivers may earn better rates in their late teens or early 20s. Car insurance premiums are based on several factors, including your driving record and claims history. To get the best rate, teens should try to avoid accidents and traffic tickets.

How do you get the best car insurance rates for a teen driver?

First, shop around and compare quotes from several insurers. Some teen drivers can also take advantage of discounts. For instance, most major insurance companies offer good-student discounts for kids who make higher grades and driver-training discounts for young drivers who complete an approved course.

What’s the safest car for my teen?

According to a study conducted by the Insurance Institute for Highway Safety and Consumer Reports, the Toyota Prius, Subaru Outback, and Mazda CX-5 SUV are among the safest used vehicles for teenage drivers. The study includes dozens of automobiles, some of which typically cost $10,000 or less.