Budgeting for a teenager behind the wheel

From the Budget Pilot desk, early fall

Dear parent of a nearly-licensed driver,

You've probably spent the last few months thinking about whether your teenager is ready to drive. That's the right first question, and it isn't ours to answer. We write to you about the second question, the one that tends to get settled by default in a parking lot on the first Saturday: who pays for what, and how much, and for how long.

The first thing we'd ask you to do is make a phone call before the license, not after. Call your insurer, or whoever handles your policy, and ask what adding your teenager would do to your premium. Ask about it with each car in the household, because the answer can differ depending on which car they're listed on or allowed to drive. Ask what discounts they offer that might apply — some insurers have them for grades, for completing a driver training course, or for monitoring devices, but what exists and what qualifies is theirs to tell you, not ours. And ask what happens to the premium after a ticket or a claim. You want these answers while you still have time to act on them, not in a renewal notice.

Once you have that figure, you'll find that most other decisions organize themselves around it, which is why it goes first.

Next comes the car. You may be tempted to buy something for them, or to hand down the family's oldest. Either can work. What we'd gently push against is choosing only on price. An inexpensive car that's expensive to insure isn't inexpensive, and an old car that needs frequent work will eat into a budget in exactly the way that makes resentment. Look up crash-test results for any car you're considering on nhtsa.gov, and get an insurance quote on that specific car before you commit. If a hand-me-down is the plan, have it inspected first, because the repairs it needs are about to become part of this budget; we once itemized what a free car costs in its first year, and the answer wasn't zero.

If you're thinking of buying a car in your teenager's name, or co-signing a loan for them, please slow down. A co-signer is generally responsible for the whole debt if the borrower stops paying, and a missed payment can land on your credit as well as theirs. There are reasons families do it anyway, but they should be decided at a kitchen table, not a dealership desk. Before you co-sign a car loan sets out what you'd be agreeing to.

Then there is the question you'll be tempted to skip: who pays for what. We'd suggest listing every cost the car creates — the insurance increase, fuel, maintenance, registration, a share of the eventual tires, parking, and the deductible if there's a claim — and deciding, line by line, who covers each one. There's no right split. Some families cover everything and treat it as part of raising a child. Others ask the teenager to pay for fuel and nothing else, or for a fixed amount each month, or for anything that follows from their own mistakes. What matters is that the split is decided before the first bill arrives and that everyone knows what it is.

Write it down. A one-page agreement sounds formal for a family matter, and it is, a little. That's the point. Put in who pays for each cost, what happens after a ticket, what happens after a claim, the rules about passengers and hours if you have them, and the date you'll look at it again. Signing it together is a small ceremony that makes it real.

The deductible deserves a sentence of its own. If your teenager has a collision, someone will pay the deductible before the insurance pays anything else. If you'd like them to cover part of it, consider having them build it up in advance — a small sum set aside each week into a savings account in their name, visible to both of you, until it reaches the deductible printed on your policy. It turns an abstract risk into a number they've watched grow, which tends to change how people drive in a way no lecture does.

Fuel is the cost your teenager will feel first, and it's the easiest one to hand over completely if they have any income. It's also the one most likely to be quietly paid by you, one fill-up at a time, unless you're clear. A prepaid card, a fixed weekly amount, or simply "you fill it when it's below a quarter" all work. Pick one.

Finally, revisit all of this at renewal. Premiums are recalculated at each renewal, and the factors behind them can change as a driver gains experience; ask your insurer how theirs treats a young driver with a few clean years behind them. Tell your teenager that, too. It gives the careful driving a visible reward.

None of this will make the first solo drive any less nerve-racking for you. We can't help with that part. But a family that has settled the money beforehand gets to argue about the curfew instead, which is the argument you'd rather be having.

P.S. When you call your insurer, ask them one more thing: exactly when coverage for your teenager needs to begin, and what they need from you to make it so. Getting the timing wrong in either direction is an avoidable expense. For the wider picture of what a new driver does to a policy, see adding a driver to your policy.