Driving Straight into the Future

Hello my Wealthy Kids Creators!! I hope everyone has had a wonderful week and has a beautiful first day of Fall tomorrow. Can you believe it?! It is already the Fall of 2023!!

Time flies when you’re having fun and raising kids! As I reflect on just how quickly things change for my kids and how fast they are racing toward their teen years, I am brought to the ugly truth that they will have to have cars in the not-so-distant future! A few years away, yes but still, I know how fast it gets here.

Although I am not looking forward to it, I do want my kids to be prepared. Cars are huge expenses, they have a lot of large expenses that go along with them and they are also a sore spot when it comes to protecting your dollars. Car loan debt is a huge problem in the US and is known in some circles as “what keeps Americans poor”. Although cars are absolutely necessary for getting to and from work, especially where we live in rural America, they are not considered a financial asset if they are not paid off.
Now, to reiterate the whole point of Wealthy Kids Academy, we are in the game of teaching our kids how to manage money well. We want them to collect assets, not liabilities. That being said, let's dig into how to make sure they are ready to purchase that car when the time comes and make sure we do it so that we are helping our kids do it the Wealthy Kid way.

What age Should We Start a Car Fund and Why?

As with all of our Wealthy Ways of saving, the sooner the better! There is no time that is too early to start saving. What’s the worst that could happen? You have saved too much money to pay for a car?! That would be a great problem to have! However, at our house, we are starting car funds at age 10. I wasn’t quite as savvy with saving when my kids were smaller and although I was saving for them, I did not create an actual car fund. Now that my oldest is at the ripe old age of 10, I can see we really need to start being intentional about this goal and the money allocation for it.
Cars are very expensive and I don’t see their price tags coming down significantly in the next six years. There is going to have to be a large chunk of change in that account to fund a vehicle and all of it’s additional expenses. Also, the creation of a car fund presents a wonderful opportunity for teaching our kids about goal setting and how to create a plan to accomplish that goal. If you start a car fund at age 10, time is on your side and I really like it when that happens!

The Details

Ok, so we have established when a car fund should be made, now let's talk about how one should be created.
First, you and your family need to decide who is going to pay for the child’s car. As you probably could have guessed, in my household, the kids will be expected to pay for their own vehicle. My husband and I may or may not decide that we can do a “match” for the kids when the time comes to make that purchase, but as of right now, I want the kids to understand that they will have to take on that responsibility. I want them to be thinking about how they can earn money to go toward that purchase and I want them to take on the task of setting that money aside and saving it for their future ride.

What kind of account should we have to save the funds?
A checking account is a fine place to park money but it is definitely not a good place to save it. My advice? Find somewhere to keep the money where it is going to earn some interest. Time is on our side right?! Let’s take advantage of that compound interest while we can! High-interest saving accounts are wonderful places to earn some money. Right now there are definitely some good options out there when it comes to those. Currently, you can put money into a high-yield savings account and expect to earn 4-5% interest.

If your kids are employed they should definitely have a Roth IRA. Maxing out those accounts every year is a wonderful idea and although this money is not as liquid as some other types of accounts, the money that your child contributes can be withdrawn without penalty. Keep in mind though, that the money earned from a ROTH IRA cannot be withdrawn without a tax penalty. Talk to your accountant or CPA if you and your family have this situation.

Last, think about a typical brokerage account. There are lots of options out there but one that we have talked about in the past is Greenlight. Greenlight cards allow you to transfer money directly to your kids and it gives them and you access to it. There are options to allocate money to different accounts that you can set up in the app and there is even an investing option. If you’re just getting started, this is a great way to get the ball rolling.

A Few Closing Thoughts

There are a couple more things I would like to address before we get these car fund accounts opened.
1. A car loan should not be your long-term plan.
Listen, I am not a debt hater. Debt, when used correctly, can be a wonderful tool and debt can be a lifesaver in a time of need but the thing is, as readers of this particular newsletter, the idea is to create a good financial foundation for your kids. Car loan debt is one of those ball and chains that some people carry around for most of their adult lives. This is an expensive, unnecessary debt that we want to help our kids avoid. If they start soon enough and plan accordingly, they can avoid harmful vehicle debt.

2. Create a sensible expectation for your kids.
New cars depreciate AS SOON AS THEY LEAVE the dealership. Don’t make the mistake of allowing your kids to buy a new car that isn’t worth what they are going to have to pay. Also, really think about the expectation that is being set if your kid purchases, or worse, is given a brand new car. The bar is set very high at that point. Although we all love new, shiny things, I encourage you to coach your little one to be sensible about their vehicle purchase. Something, nice, used, and in good working order is what is NEEDED in a car. Everything else is just extra! And that extra can set a very high bar for the future. Don’t let your kid fall into the lifestyle trap of needing a brand new car every two years just because that’s what they’ve always known. There are much better places they can spend that money!

Alright parentals, time to get that account opened and let those brilliant kiddos of yours dream up ways to earn and fund it. Make this fun and enjoy the process of letting them dream of their first car!

Happy saving!

Amanda