Ready for Your First Car? Here's What It Will Cost

merica's love affair with automobiles traverses generations. The hot-rodders who cruised to the harmonies of the Beach Boys' "I Get Around" now are tossing car keys to their hip-hopping kids.

But with new car prices averaging more than $20,000 and costs for insurance and repairs accelerating, it makes increasing sense to include financial responsibility as a component of modern-day drivers' education.

In fact, in a new campaign to encourage safer driving among young people, the American Automobile Association (AAA) urges parents to make their children more aware of the costs of owning and operating a vehicle.

"We would encourage young drivers to be as involved as possible financially," says Mike Morrissey, a spokesman for AAA. "It gives them a sense of responsibility, a sense of ownership of the whole process."

You'd have to work
full-time at minimum
wage for 34 weeks
just to gross enough
money to cover the
costs of owning and
operating a new car
for one year.

AAA, a nonprofit federation of clubs with 40 million members in North America, publishes an annual estimate of car costs. AAA bases its cost estimates on a composite national average of three domestically built 1998 subcompact, midsize, and full-size cars.

The 1998 guide suggests that to have and run a typical 1998 automobile costs $6,908 a year, or about 46 cents a mile for 15,000 miles. That means you'd have to work full-time at minimum wage for 34 weeks just to gross enough money to cover the costs of owning and operating a new car for one year. That doesn't count the money you'd need as a down payment to get the car off the lot.

The cost breaks down to:

Operating expenses, which vary according to how much you drive:

6.2 cents per mile for gas and oil
3.1 cents per mile for maintenance
1.4 cents per mile for tires

And fixed ownership costs:

$900 a year for insurance
$226 a year for license, registration, and taxes
$3,364 a year for depreciation, the declining value of the vehicle
$813 a year for finance charges (based on 20% down payment and 9% annual percentage rate for four years)

Look beyond sticker price
Costs vary of course, depending mostly on the car you drive.

Runzheimer International, the cost management consulting firm whose customers include AAA and the Internal Revenue Service, figures the annual cost of driving a 1998 Chevrolet Metro LSI at $6,793 vs. $17,325 for a Mercedes 320S.

As for the costs of a new car vs. keeping an old one, Runzheimer calculates a $9,927 savings over four years for sticking with a 4-year-old, 6-cylinder, 4-door sedan rather than trading it in and buying a new one. Over four years, the used car still would cost $13,282--$5,022 of it in repairs and maintenance.

And even young people opting for an older car can expect higher insurance rates than those of the adult drivers figured in the AAA estimates.

Detailed budget analysis isn't what you'd expect from teenage drivers lusting for the independence of a car of their own. But the point is to consider financial obligations beyond the sticker price.

"You need to look at the costs down the road," Morrissey says.

      The point:
      Consider financial
      obligations beyond
      the sticker price.

"We encourage
young drivers to be
as involved as
possible financially."
Mike Morrissey, AAA.

Don't become "vehicle poor"
Just like "house poor" families who buy too much house for their cash flow, car owners can become "vehicle poor." As Morrissey puts it: "You can afford to have this vehicle, but not to take it anyplace."

The average cost of driving has increased sixfold since AAA's first guide in 1950. Paul Richard bought his first car at age 16 for $400. But that was 36 years ago.

"Nowadays, that would get you a tire and a rim and maybe a gas tank," jokes Richard, who's executive vice president of the National Center for Financial Education, a nonprofit group based in San Diego.

Richard despairs that too many parents buy cars for their kids or borrow money for them or co-sign their car loans. "They want to make their youngster's life easy," Richard says. "They're giving young people what they want instead of teaching them to discern between what they want and what they need."

Help them understand, too, the differences among financing sources. Credit union loan rates typically are lower than competitors' for new and used cars.

Richard agrees with Morrissey that financial accountability is a big part of teaching youths about being responsible motorists. But it's also a lesson in money management. Parents not only should inform their kids about car costs, they should share those expenses with them, Richard says.

Pay your fair share
Reasonably, young people should at least pay for the gas they use, some of the maintenance costs, their portion of the insurance premiums, and whatever damage or tickets they incur, Morrissey says.

Richard insists that the most effective way for parents to teach their children the value of a vehicle is to help them set up a fund to buy and run a car of their own.

"The best thing is to set up a savings program not only for the vehicle," he says, "but for the operation of that vehicle."

To compute your car costs--a worthwhile parent-and-child project--a work sheet is included in free copies of "Your Driving Costs," a booklet available through local AAA clubs. For the nearest office, consult the AAA Web site.

For tips on controlling car costs, visit the IntelliChoice site. IntelliChoice is a publisher of consumer information on vehicle costs.