A 44-year-old woman asks:

It can be useful to look at the figures from FÍB, the Icelandic Automobile Owners Association. They publish estimates of the cost of owning and running a car, with the most recent figures available from last year.

Their calculations do not include recent kilometre charges, changes in fuel prices or the temporary reduction in VAT. Even so, I think their summary gives us a fairly good picture of the overall cost.

Cars are expensive

FÍB gives six different examples.

Let’s use the cheapest one here. That example is based on a petrol car costing ISK 3.9 million and being driven 15,000 km a year. The total annual cost is estimated at around ISK 1.6 million.

That clearly affects the ability to save for a home. Money does not usually fall from the trees while we are studying at university.

The saving can be substantial

Instead of owning a car, they could use other ways of getting around.

Since I don’t know how far they need to travel to school, work or for leisure, I have to make some assumptions. Let’s assume they can take the bus, use scooters now and then, and occasionally take a taxi when needed.

An annual student bus pass costs ISK 58,000.

Using a Hopp scooter for 10 minutes, twice a week, also costs about ISK 58,000 a year.

One taxi ride a month might cost around ISK 84,000 a year. Together, that comes to ISK 200,000.

In this example, owning a car would therefore be eight times more expensive. By avoiding the car, they would save around ISK 1.4 million a year.

How much difference would that make?

Now let’s assume that the saving is put aside each month and earns a 6% annual return.

As you can see, these are large amounts of money.

The dream of saving enough for a down payment on a home is absolutely within reach. On top of these amounts, they could add accumulated supplementary pension savings (viðbótarlífeyrissparnaður), which may be used tax-free under current first-home rules, as well as any other money they would have saved if they had decided to buy a car.

If the goal is to save a 15% down payment for a home costing ISK 65 million, the transport saving in our example should, by itself, be enough to buy the home in under six years.

If the goal is a 10% down payment on a home costing ISK 60 million, it would take less than four years.

Since I don’t know their full financial situation, I cannot combine these scenarios with their other saving capacity or say exactly how much buying a car would delay the purchase of a home. But the difference could easily be several years.

Avoid the car loan

Cars can, of course, be convenient. In some cases, they may even be necessary. But they are usually a poor investment and expensive to run.

They become even worse if the purchase is financed with a loan. So if they do decide to buy a car, I would strongly encourage you to do everything you can to help them avoid taking out a car loan.

Buying a car is not just about the price on the windscreen. It is also about the years of saving, flexibility and future opportunities that may disappear with it.