Q. My son has just got his P Plates and he is looking to buy his first car when he finishes school. He is in year 10, works part time and receives pocket money for jobs he does around the home. He has $2,300 saved in the bank. Any tips on how I can encourage him to save towards his goal? I am happy to contribute in part but I want him to work for it!
A. Saving to buy a major item like your first car is often the first step towards building the discipline and habit of life long saving. The act of saving is not a great motivator, the motivator is the outcome that savings brings.
It is critical that your son focuses on the goal he is seeking to achieve. Often a visual reference to the goal such as a picture on the wall will keep him motivated. Whilst it is fine to dream about the exotic car, the goal needs to be realistic and attainable.
Start the regular discipline of saving towards the goal as soon as possible. Break the goal down into weekly or monthly savings targets.
For example if he wants to buy a car for $7,500 at the end of 2017, assuming he uses all his available savings to purchase the car, he will need to save $5,200 over the next 18 months. To achieve this he would need to bank around $70 a week.
The regular amount he commits to saving must be realistic, otherwise he won’t stick to the plan. If it is too hard, either modify the goal (cheaper car) or extend the savings time frame. For example if he is prepared to save for a further 6 months, he would only need to save $50 a week to save the same amount.
He needs to hold himself accountable to his savings targets
As a motivator, draw a grid over the picture of the car, each box represents a regular saved amount. Each time he deposits that amount he can cross a box off. It is about building lifelong savings habits. Many a house deposit has been saved using this simple technique!
Given the time frame, a high interest savings account that rewards regular saving is the most appropriate investment. Interest rates can be as high as 3% if regular deposits are made. However the rate really isn’t the key to your son achieving his goal, rather it is the discipline of regular saving.
In terms of helping him out, encourage and reward positive behaviour. Rather than gift him money unconditionally, offer to match or proportionately fund what he saves on a regular as a reward for staying “on track”. It is remarkable how the instantly gratifying “must have” purchases suddenly become less important in the pursuit of the longer term goal.
Do not borrow money to fund the purchase, a car is not an investment, it is a lifestyle choice that depreciates in value.
Beyond the excitement of the car purchase, your son will need to budget for ongoing costs. Consider the insurance, maintenance and running costs of the car. Will he be able to afford the petrol?
A wise piece of advice I once received, “spend as little on a car as your ego will allow you to.”