A new survey released today by USAA indicates that learning to drive is the ideal time for parents to begin teaching teens the basics of personal money management.
Despite the common perception of teens' financial dependence on their parents, 76 percent of teens indicate that they do, in fact, contribute to the cost of driving, and nearly half of teens cover the cost of gas largely on their own. With gas prices consistently on the rise, it's all the more crucial that teens are equipped with the necessary knowledge and tools to cover this and other regular expenses.
"Learning to drive is a major milestone in a young person's life and with it comes major responsibilities," said June Walbert, USAA Certified Financial Planner(R). "Safety will always be the first priority, but driving a car also has financial implications, so it's the perfect time for parents to introduce the concept of responsible money management and help teens establish a strong foundation for their future financial success."
Walbert encourages parents to remember what she refers to as The ABCs of Teen Driving Finances:
-- Act - Parents and teens must acknowledge the cost of driving and think about how those costs will be paid.
-- Budget - How much will parents pay and what will the teen contribute? Plan a budget and stick to it.
-- Communicate - Discussing these expenses and keeping the lines of communication open will help prevent surprises.
"Through honest dialogue, parents and teens can work together to avoid common financial issues that often come with driving while, at the same time, help prepare the teens to make smart financial decisions in the years ahead," said Walbert.
The good news is that the majority of teens and parents feel good about their teen obtaining a driver's license, because driving provides teens with the chance to become more responsible. The survey finds 74 percent of teens and 88 percent of parents believe driving allows teens to take on more responsibility. The bad news is that teens don't have a clue about what's involved in saving, budgeting and paying for driving costs.
Teens and Parents Need to Talk
More than 90 percent of teens claim to understand the financial responsibilities of driving, but USAA found that many teens lack important direction from their parents on the ultimate cost of driving. Nearly one-third of teens (31 percent) said they have never had a conversation with their parents about costs related to driving, such as car payments, insurance, registration, maintenance, gasoline and other expenses.
Teens Need to Build a Strong Financial Foundation
In addition to talking openly about financial issues, parents need to help their teens become familiar with the financial resources and tools available to them. According to the survey, even teens who pay for all or part of their driving expenses themselves haven't even begun to assemble some of the necessary tools for building a solid financial future.
-- 68 percent don't have a checking account
It's standard for financial institutions to require parental involvement with regard to their teen's checking account, if the teen is under the age of 18. And it's typically advantageous for teens to open an account with their parents, as this often makes them eligible for additional benefits from the bank that they may not receive on their own.
-- 50 percent don't have a debit card through a checking account
By teaching them to properly transact with a debit card and use a checking account, parents can show teens how to monitor and manage cash flow. In turn, this prepares teens for the regular costs they will incur once they get behind the wheel.
Parents Need to Plan for Expenses
The survey also revealed that 76 percent of parents significantly contribute to or cover the cost of their teens' driving. However, most parents don't save enough for this expense. In fact, despite the high cost of driving, more than half of parents surveyed aren't saving at all. When you add up the cost of the car and the ongoing costs described earlier, operating a vehicle costs an average of $8,000(1) a year. That's roughly $2,000 more than the average annual cost of tuition at a four-year public university(2), and with gas prices at an all-time high, the expense will only increase.
"While the costs of driving can be significant, parents can avoid theses headaches if they develop a long-term savings plan and stick to it," says Neale Godfrey, founder, Children's Financial Network. "It can be as simple as watching a movie at home instead of going to the theater or bringing a brown bag lunch to work -- it all adds up and will ensure that you can help your child with their driving expenses."
The founder of an organization dedicated to the financial literacy of youth, Ms. Godfrey recognizes the importance of communication about finances between parents and their teens. "The USAA study highlights the need -- and desire -- for dialogue about financial responsibility," says Ms. Godfrey. "As parents hand their teens the keys to a car, they also need to hand them the keys to a strong financial future."
One final -- but important -- tip for parents is to explore all resources available to them with regard to educating their teens about finances. The USAA Educational Foundation (www.usaaedfoundation.org) provides families with credible and objective information on how to deal with all of life's financial situations. One of the Foundation's many programs is an initiative called Keeping Every Youth Safe (K.E.Y.S.), which provides teens and parents with useful information to begin to understand the full extent of the costs of driving, including the responsibility of insuring the vehicle, ongoing maintenance and the importance of maintaining a good driving record.
About the Survey
The survey was conducted on behalf of USAA by Harris Interactive Service Bureau between Aug. 27 and Sept. 4, 2007. The national sample included 1,000 respondents - 500 teens age 16-18, and 500 parents of teens age 16-18. All teens and parents surveyed had their driver's license or were preparing to obtain their license within the next year. The results have a margin of error of +/- 4.4 at the 95 percent level of confidence. For More information about the survey, visit www.usaa.com.
USAA, a diversified financial services company, is a leading provider of competitively priced financial planning, insurance, investments, banking and retirement products. The member-based organization serves those in the military, veterans and their families. For membership and eligibility information, please visit www.usaa.com.
About The USAA Educational Foundation
The USAA Educational Foundation is a nonprofit, tax-exempt 501(c)(3) organization that provides consumer information to the military community and the general public. Since 1989, The USAA Educational Foundation has published information on important personal and financial issues. Educational content, publications and national safety initiatives have been developed for you, the consumer. The founder and sponsor of The USAA Educational Foundation is USAA, a San Antonio, Texas-based financial services company providing auto, homeowners and life insurance products, banking and investment services. The USAA Educational Foundation, however, does not promote or endorse the products or services of any commercial entity.
About Children's Financial Network
Children's Financial Network, Inc. (CFN) is a company dedicated to worldwide financial literacy through the education of our youth and their parents about money and the values and life skills they'll need to be successful in the world. Financial education is one of the critical keys to success. We actively make our material available to schools both public and private, as well as after-school programs and community based organizations. Our Chairman is Neale S. Godfrey who, after a successful career in the financial world, founded CFN.