How I'm Setting My Kids Up to Buy Cars for Cash on Their 16th Birthdays

Is this something you could try with your kids?

My kids are a long way away from being teenagers. But, as the person who has to shuttle them around to all of their myriad activities already, I look forward to the day when they'll be able to drive themselves places.

Of course, many teens end up not being able to buy a car because of the high price of used (or new) vehicles as well as the high costs of auto insurance. The good news is, my kids are not going to have to worry about where the cash for their first car will come from. That's because I'm setting them up to be in a position to pay for a car outright when the time comes.

Here's how I'm doing that.

This simple approach will make a big difference in their lives

During my son's first Christmas, I realized that I had a few options available. I could buy tons of toys that he would probably play with for a few days or weeks and then get bored with. Or, I could instead get started on a plan to enable him to buy his first car when he turns 16 -- something that I'm sure would mean a whole lot more to him since he'd be old enough to be aware of the gift and it would enable him to have the freedom young people crave.

Since he already had a ton of toys, the decision was a no-brainer for me. Rather than spending a fortune on items that he wouldn't get a lot of value out of for the long run, I bought a few small items for him to unwrap at a garage sale and I put the rest of my holiday budget for him into a high-yield savings account. I also enlisted his grandparents in the plan as well, encouraging them to buy just a token item or two and then contribute money to his savings account.

We made the decision that this would be separate from his college savings since we wanted this to be a fun gift he would enjoy, and we ended up being able to put a total of $500 in the bank for him. We decided to do the same thing on his birthday as well. And we committed to doing this process each year.

This means he'll end up getting $1,000 deposited into his account for a total of 16 years until he becomes old enough to drive -- at which point, $16,000 will be available to help him get a pretty nice used vehicle. And when my daughter was born, we decided we would do the same for her.

When my kids turn 16, I'll let them know about these accounts and give them the choice. They can buy a car with the money stashed in them, or choose to use it for something else fun like funding a study abroad trip. They'll be old enough to appreciate the money much more and use it for something that's a lot more valuable than the disposable toys young kids so often get.

Could this technique work for you?

If you also find yourself struggling to decide what to buy your kids or wishing they didn't get so much disposable stuff for holidays and birthdays, you may want to consider putting the money into savings for them.

We still have great holidays and they appreciate the fun of opening the small inexpensive gifts they receive -- and they'll appreciate it even more when they find out about their big savings account balances later in life.