Although it didn’t take a scientific survey to know it, traffic, accidents, high gas prices and the constant increase in insurance costs, repairs, which are now added to subscription payments for certain services and features, cars are becoming one of the main economic concerns for millions of drivers.
The average price of new cars in the U.S. has set consecutive records over the past few years to reach $49,388 in January 2023, which coupled with the high cost of gasoline has one in 4 vehicle owners fearful that these costs will affect their ability to pay other bills.
According to the survey commissioned by NerdWallet and conducted by The Harris Poll between January 31 and February 2 of this year, of 2,060 U.S. adults over the age of 18, 1,781 own a personal vehicle with an average monthly payment of $556 or up to 12% of monthly net income, in line with the national average of $4,537.
And while we are all affected by inflation, rising interest rates and the particular supply and demand crisis in cars – new and used – created by a perfect storm in the wake of the COVID-19 pandemic, young drivers are the hardest hit.
For example: the average cost of owning and maintaining a car for Generation Z drivers (ages 18 to 26) is $921, while millennials (ages 27 to 42) spend $821, which is significantly higher than those of Generation X drivers (ages 43 to 58) and baby boomers (ages 59 to 77), who spend an average of $433 and $308 per month, respectively.
Why young people pay more to own a car
This is due to two fundamental factors that work against young drivers: less credit history, which translates into higher interest rates for vehicle financing, and more expensive auto insurance policies, with the justification that their lack of driving experience puts them at greater risk of being involved in accidents.
In addition, driven by their natural drive to impress and a financial myopia to focus more on the monthly payment than the total cost, young buyers tend to choose luxury brand cars with higher price tags that exceed their budget.
The survey revealed that – regardless of age range – 10% of car owners have total monthly expenses of $1,000 or more, but Generation Z drivers and millennials are more likely than their older counterparts to be willing to spend $1,000 or more on their vehicles each month (20% and 18%, respectively, versus 6% and 3% of Generation X and baby boomers).
X-ray of auto insurance costs
According to NerdWallet’s analysis, the average U.S. driver pays $179 per month for full coverage insurance, which includes liability, uninsured motorist, comprehensive and collision coverage. That rate can be reduced to an average of $57 per month by opting for minimum required coverage, which depends on each state’s laws.
Although nearly 3 in 5 drivers (57%) said they were satisfied with their auto insurance provider and their rates, most do not make much of an effort to shop around for better options. Only slightly more than a quarter of drivers (26%) compare their insurance quotes once a year or more.
“Shopping around and comparing auto insurance quotes is the best way to get the cheapest rate possible,” said Ben Moore, auto insurance specialist at NerdWallet. “And now it’s easier than ever. Most insurer websites allow potential customers to get an instant quote, while online comparison sites allow you to get quotes from multiple companies at once.”
Among who is satisfied with their current insurance provider, baby boomers are the happiest (78%), as they generally pay less compared to Generation Z, millennials and Generation X owners, at 28%, 43% and 57%, respectively.
Insurance myths and saving tips
When asked about the effect of credit history in relation to the cost of an auto insurance policy, 66% said they were aware, but little do they know that a low credit score can have more impact on a driver’s auto insurance rate than having a DUI and that four states (California, Hawaii, Massachusetts and Michigan) prohibit insurance companies from using these credit scores to set rates.
When it comes to the ideal time to buy an insurance policy, about half of Gen Zers and millennials (50% and 54%, respectively) said it’s when they sign the contract to buy or lease a new car, which is a serious financial mistake.
“The best time to buy new car insurance is right after filing a claim or receiving a moving violation, as rates are likely to increase with your current insurer,” Moore said. “But all drivers should consider buying a new policy now, because insurance rates are expected to increase nationwide this year.
“It’s important to remember that discounts available with a new insurer – such as new customer discount promotions – may decrease at renewal, which will leave repeat customers with a higher rate,” he added.
About 4 in 10 drivers (41%) said their state’s minimum insurance coverage – liability coverage without comprehensive or collision coverage – is sufficient for them, but these policies do not cover damage to their cars, including fire, storm or other non-driving-related events.
In addition to regularly comparing insurance rates in search of lower prices, it is possible to bundle home and auto insurance policies to obtain and reduce optional coverages to save more money.
For young drivers, the savings formula also includes postponing the purchase or lease of their dream car until they are in better financial condition and driving cautiously to avoid accidents that further increase the cost of their insurance policy.
Meet Ellie Gibson, an accomplished automotive author and industry expert based in the United States. With over a decade of experience in the automotive field, Ellie has a deep understanding of the latest technologies and trends in the industry. She has written several books on the subject, including “The Future of Electric Cars” and “The Evolution of the Automotive Industry.” Her books are widely considered to be must-reads for anyone interested in the field, and she is often sought after as a speaker and commentator on automotive industry topics.
Ellie is also a regular contributor to leading automotive publications and websites, where she provides expert analysis and commentary on the latest industry news and developments. In addition to her work as an author and industry expert, Ellie is also an avid car enthusiast and enjoys participating in motorsports events. She is passionate about educating the public about the latest advancements in the automotive industry and enjoys helping people make informed decisions when purchasing a vehicle.