Car insurance is necessary. It protects you in the event of an accident. Teens and young adults have higher insurance rates. They’re new to driving and statistics show that they’re more accident prone – they get in more accidents and they drive faster.

Teen driving accidents also tend to be more destructive. The bottom line is that car insurance rates for young adults can be more than the monthly car payment. It’s not uncommon to pay several hundred dollars a month for a teen driver.

What Does This Mean to Your Child’s Financial Future?

It’s important to help your child make smart decisions from the very beginning. Teach them to budget their money. Teach them to create emergency accounts and to save for their financial goals. They need to learn to live within their means before they’re out on their own.

Imagine them graduating from college. Chances are they have student loans to pay back. Hopefully they get a job and they’re able to support themselves. They rent an apartment and they buy a car. It’s quite easy to overestimate how far their dollars will go and insurance is often an unexpected expense for young adults. If they’re not prepared, they may turn to credit cards to help pay their bills. This is particularly true if they’re repaying student loans.

Getting trapped in credit card debt is stressful and with high interest rates, can lead to financial disaster. Can car insurance rates for young adults cause additional debt? Yes, if the child cannot pay for their car insurance with cash and has to turn to credit to pay their bills.

So What’s the Solution?

The simplest solution is also the oldest; it’s called a budget. A budget helps a person understand exactly how much money they have to work with each month. It tracks income and expenses and leaves room for discretionary spending. If a person cannot afford insurance for a car, then the solution is to shop for better rates, buy a less expensive car, or to use public transportation.

Additionally, it should be easy enough for anyone buying a car to review what the insurance would be for that car before they buy it. Insurance for new cars is more expensive than for used ones. Insurance on cars that have a lot of annual mileage on them will cost more as will cars that are sportier. Shop around for the best car insurance and the best car, learn to budget, and pay for your expenses with cash. It’s the best way to avoid incurring additional debt.