Ready or Not: Does Your Teenager Have a Credit Card?
By Teresa Ambord
Credit card companies are always fishing for new consumers from whom they can collect interest charges, and your teenagers are the fish they're trying to catch. You probably remember when it was hard to get your first credit card, even as an adult. Then at some point, credit card companies started pursuing college students, presumably based on their future earning power. And by the time those students graduate, they could very well already owe a mountain of debt.
A study by Nellie Mae (a maker of student loans) shows:
- 78 percent of college students have credit cards, and typically those students carry balances of $2,800.
- 10 percent carry balances of greater than $7,800.
Now credit card companies are targeting your high school students and even middle schoolers. One in three high school kids use credit cards, half of those in their own names, according to Jumpstart Coalition (a non-profit group that promotes financial literacy).
How Much Do Kids Know About Money?
A financial literacy test given to 12th graders about such things as taxes, credit, and retirement yielded an average of 52 percent correct answers… a failing grade. Yet these same kids could be carrying their failing grades right into the real world of mounting debt. It is up to parents to make sure your kids know the truth about credit. More teens than ever are working to earn their own money. Plus teens, working or not, are spending more of their parents’ money. Before cutting them loose, teach them some basics.
What Teaching Tools are Available?
Some parents are taking the direct approach and teaching their kids financial responsibility with secured credit cards. A secured card usually has a low limit, based on the amount of the deposit made to secure it, such as $200 or $300. This gives kids a chance to see how to use a credit card and how fast the charges can add up. You can teach them to pay off the monthly balance and live within their means. Plus it is an ace in the hole in case of emergency.
Another possibility is Cobaltcard, issued through Heritage Bank of San Jose, California, for kids ages 13 to 22. It works like a debit card. This card can only be used online, and the limit is determined by the deposit. This type of card can teach kids about finances, but, some worry that it can also open up the “dark side” of the Internet to them. Many sites that can only be accessed with a credit card will be available.
In response to these legitimate concerns, some companies, such as DoughNET, iCanBuy, and RocketCash have established virtual malls. These malls feature stores that only supply teenager–appropriate goods. Parents can set up prepaid online accounts for their kids in these stores without worrying that the wrong things will be available.
Misti Perkins, a spokeswoman for DoughNET says this: “A lot of our content is geared toward making them savvy about money. But we stay away from the words ‘teaching’ and ‘learning.’ That would turn them off.” Savvy… on the other hand… that sounds cool enough to interest teenagers without tipping them off to the educational aspect.
Whatever Card You Use to Teach Your Kids About Money…..
Make sure your children know that you will be reviewing the charges monthly, and that charging privileges can be halted abruptly and canceled if inappropriate purchases are made, such as access to pornographic sites. But even if the purchases are not from the “dark side” this gives you a chance to talk to your student about their spending habits and give them some guidance while the damage they can do is limited.
