Have a teen nearing driving age? Susan N. shared this brilliant personal finance tip on Facebook:
“We required our teens to have the deductible in the bank before they could drive our cars. Only one (so far) has had to pay the deductible.”
A teen “Driving Deductible Fund” is a smart idea for at least three reasons:
- It gives your teen some shared financial skin in the game — even when your teen won’t be purchasing a separate car. A financial stake fosters appreciation, accountability, and, in this case, caution! If your deductible is huge, consider mandating a reasonable fraction instead.
- It provides a mini education in how insurance works. Your teens will suddenly become keenly interested in the ins and outs of insurance policy deductibles if they actually have to save up for one before getting their hands on your wheels. (If your kids are younger or have no interest in driving, try setting up a family phone insurance company to deliver the lesson instead.)
- It’s a great way to introduce the best practice of maintaining an emergency fund. Just think how much less consumer debt we’d have if people learned about emergency funds in their teens!
So, what if you’re lucky enough to have a teen who navigates to young adulthood without exhausting the fund? Roll it over to a general emergency fund or, if your teen is eligible, a Roth IRA.
Even throw in a parent match to sweeten the pot. After all, your kid’s good driving spared you some expenses and a whole lot of parental stress.
Check out these related car finance tips for educating teen drivers:
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