Costs of Maintaining a Car
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If you are new to this newsletter, we produce materials
to be used by teachers and parents. Each week we
introduce a new financial concept, from which we try
to include a learning activity, tips and/or links to help
our young learners understand financial management.
Our newsletters and training materials are designed
to meet the federal standards for Financial Education
and Personal Money Management.
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I. Welcome
I would like to take a moment to thank all of the
individuals who completed the survey on allowances.
Late last week, we sent out a survey to a random
sample of our subscribers to gather information
regarding parents use of cash allowances.
I would like to share some of the results of this survey.
Parents with children between the ages of 10 and 12,
gave the following amounts (each week) as an allowance:
43% give $0
3% give $2
3% give $3
3% give $4
43% give $5
3% give $6
2% give $10
Families all have different philosophies about giving
money, how to value an allowance and what the
allowance is based upon (i.e. chores, grades, etc.).
I will share with you the full results of the survey
next month.
Thank you in advance.
Tim Liptrap,
Vice President, Education and Development
Email:
tliptrap@101financiallessons.com
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II. Editorial Calendar
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Owning or maintaining a car is more expensive
than most students realize.
Before you purchase a car, you should consider
working out a budget for the vehicle, to be sure
that you can afford the extra expense each month.
Payments
When developing your monthly budget, do
not forget that you may need to make payments
to a bank, credit union or financial institution to pay
for the car.
Sales tax
Each state is different. If you purchase a vehicle (new or
used) in Connecticut; you would need to pay 6% of the
purchase price of the vehicle (one-time). Check with
your state's registry of motor vehicles regarding their
rules and regulations.
Registration Fees / Fines
Many states charge one-time fees such as a
registration plate or title fee. Some states also require
emissions and safety tests.
If you live in a city, there may be additional charges
for resident's stickers. Chicago charges $75 a year.
Be prepared to pay money for parking tickets and
speeding tickets. For example, in major city such
as Chicago, San Francisco and Boston, parking
tickets are $50 each!
Excise Taxes
Each year your city or town may send you a bill for
excise tax. This is a fee that is based on the value
of your vehicle. Check with your city or town clerk's
office to evaluate how much you would owe.
Insurance
Factors such as where you live, your past driving
record, your age, the type of car that you own,
your parents' driving record and what you will use
the car for will determine the cost of your insurance.
To protect consumers from being taken advantage of,
many states regulate the cost and administration of
automobile insurance.
You should budget a minimum of $100 to $125 a month
for automobile insurance.
Insurance Deductibles
A deductible is an amount of money in which an insurance
policy holder would be responsible to pay, in the case
of a claim or accident (in addition to the monthly premiums).
A deductible is considered the amount of risk that a person
is willing to take on. The less risk or lower deductible that
you are willing to pay would result in higher insurance
premiums.
As an example, if you were to get into a car accident and the
claim was for $10,000 and you had a $500 deductible, you
would only be responsible for $500.
Maintenance
To keep a car running and covered under a manufacturer's
warranty, you will need to have periodic maintenance.
This includes scheduled tune-ups, flushing of radiators,
change of wiper blades, tires, oil changes, batteries, light
bulbs, etc.
Oil changes can range from $16.95 to $29.95 depending
who does the work. Plan to change your oil at least
four times each year.
Budget at least $120 for oil changes and plan on $150 -
$200 in general repairs and maintenance.
Note: I called my Toyota dealer today, a general tune-up is
$175 plus tax.
Gasoline
Depending upon how much you drive, the type of
vehicle you have, where you drive (city vs. highway)
and your speed, you can determine the amount of gas
that will be consumed.
To figure gasoline into your budget, determine how many
miles you will drive each week, divide that by how many
miles per gallon your vehicle uses and then multiply it
by the cost of gasoline.
Example:
150 miles week / 25 MPG = 6 gallons of gas used.
6 gallons x $1.50 gallon = $9 week
Parking / Tolls
Do you park your car in a lot that require you to pay?
If so, it can add up. If you paid $3 a day for parking at
work or school, it could cost you more than $750 a year.
If you use a toll road which charges $1.00 a day, your
additional travel expense could be more than $250
a year.
Depreciation
A car is not considered an investment. Cars, unlike
real estate and stocks (over the long term), depreciate
in value. This means that they lose value each year
and every mile that you drive.
There are two books that are considered the standard
in the industry. You can use these resources to check
the value of used cars. The Kelly "Blue Book" and
the National Automobile Dealer Association or the
"NADA".
To check the value of a used car, use the Kelly Blue
Book web site at http://www.kbb.com.
It is important to understand the concept of depreciation,
especially, when you are trying to sell or trade your car
into a dealership.
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IV. Teaching - Costs of Maintaining a Car
This exercise of teaching your students what it costs to
purchase and maintaining a car, goes far beyond a simple
budgeting exercise.
The decision making process, prior to the purchase of a
vehicle is a real life lesson in consumer economics,
prioritizing, and the economic theory of opportunity cost.
In our experience, a student is looking a vehicle because it
represents freedom, being in the "in crowd" or a method to
transport friends. Having a car may be more an emotional
purchase for students rather than a practical purchase.
We would recommend teaching this lesson as an "opportunity
cost". After the student develops a budget for the car, we
would pose the question of what could be purchased
with the $200, $300 or $500 a month, if they did not purchase
a car?
Depending upon the area in which you live, alternatives to
purchasing could be offered, including public transportation,
rides from family and friends, walking and / or bicycling.
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V. Learning Activity
Goal:
To show a student how to figure the costs of running
a car.
Skills Exercised:
- Internet research
- Comparisons
- Budgeting
Time: 60 Minutes
Directions:
Step One.
Visit www.yahoo.com and click on the
Autos button.
When the page opens, click on the Car Financing button
found on the left side of page.
Use the Loan Payment Calculator in the center of the page
and enter the following figures, $10,000 for the negotiated price,
6% for the sales tax and interest rate, a down payment of $500
for a term of 48 months. Click Calculate when finished.
Write the monthly payment here $ ___________
Step Two.
Ask your parents to help you call an Insurance Agent to help
determine the costs of you buying an insurance policy.
Use the price for the same car in Step One when figuring your
insurance payments.
Write your monthly payment here $ ___________
Step Three.
Determine the fees and expenses per month for the
following: parking / tolls, gasoline, maintenance
and oil changes.
Write your monthly expenses here $ ___________
Step Four.
Add the monthly expenses from Step One through
Step Three.
Write your total monthly expenses here $________
Answer the following questions:
1. Can you afford the monthly expenses for your car?
2. If you did not purchase the car, what could you do with
with money otherwise?
3. List other modes of transportation available to you
in your area?
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Thank you for being a subscriber!
Enjoy the rest of your week.
Timothy Liptrap
Vice President, Education and Development
Copyright 2005 Ó
Stocks, Bonds and More, Inc. All Rights Reserved