High School Students and Credit Cards--A Recipe for Disaster?
|Rebecca Lindsey is a staff writer for Credit Ratings.com.
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school days. Reading, writing, and rooting for your school football
team. Hanging out at the mall and surfing the web. Ok, so things
have changed a little since you were in school. The current
generation of teenagers now has more purchasing power than ever, and
companies are spending millions of dollars to get your teen to pay
attention to their products.
If you’re like most American
families, your teenager has some sort of income, be it an
allowance or a job. The problem: how do you teach your child about
money, before they “invest” it all into the current fad?
Believe it or not, the solution may be a credit card.
Once upon a time, giving
a teenager a credit card was laughable, if not impossible. However,
now there are several cards available just for teens. Options such
as parental control and digital allowances serve to let parents
participate in their teen’s initial journey through the world of
credit. Although the thought of your teenager with a credit card in
their back pocket might cause you to break into a cold sweat, there
are some good reasons why this could be a great educational
experience for your child, as well as yourself.
Money Management 101
The sooner your teen learns about the reality of credit, the better.
Teach your teen basic lessons about how credit works, including how
interest rates can quickly double or even triple the original price
of an item. Rather than giving your teen free reign to purchase
anything he or she wants, help your teen establish a budget and a
sense of financial responsibility. Another good source is the National
Institute for Consumer Education, which provides easy to read
mini-lessons for students about credit.
for Good Credit
your teen with early money management skills, you set them up for an
easy transition into the world of adult credit. A recent survey of
adults sponsored by the InCharge Institute of America highlights the
need for education. About half of the respondents claim that they
were never taught about credit by their parents. When teens leave
home for college or work, they will be bombarded with credit card
offers. Incoming freshmen are expected to amass an average $1,500 in
credit card debt according to Nellie Mae, the largest non-profit
provider of education loan funds in the U.S. (more info here).
A sound knowledge of credit will make your teen aware of the
potential pitfalls of “too good to resist” credit offers. An
early start can also help your teen to establish good credit, giving
him or her countless advantages when they’re on their own looking
to purchase a car or a house.
Another advantage is
the feeling of security you have in knowing that your teen has a
back up in emergency situations. Using plastic is also safer than
using cash. Furthermore, in the event that your teen's card is
lost or stolen, you'll pay nothing for unauthorized purchases.
There are many card
options available to teens. During the summer of 2001, Visa
introduced a new product geared toward teens that is called the Visa
Buxx card. The Buxx card has sparked a great deal of
discussion and debate about the merits of allowing teens access to
electronic forms of payment. The card is basically a prepaid debit
card, according to Michelle Singletary, a personal finance writer
with the Washington Post. Visa has embarked on a marketing
campaign to promote the Buxx card and bills the card as a
"parent-controlled reloadable payment card". The card is
already being issued by many large banks and may come with an
annual fee and transaction fees. Fees vary from bank to bank.
Another option for
parents that have a higher risk tolerance level is to co-sign for
a low-limit unsecured credit card (aka a "real credit
card"). If you are brave enough to choose this option, make
sure you limit your risk by asking for a very low limit on the
card, such as a $200 to $300 limit. Please bear in mind that this
option will affect your credit rating.
Should you decide that
it’s time to teach your child the golden rules about credit, you
will want to investigate the types of cards available. This will
help you match your teen with a card that meets his - and your-
needs. With thorough research and responsible teaching, you can
make your teen’s entrance into the financial world smooth, fun,
and successful. Go team!
The purpose of the
Jump$tart Coalition for Personal Financial Literacy is to evaluate the
financial literacy of young adults; develop, disseminate, and encourage the use
of standards for grades K-12; and promote the teaching of personal finance.
CardRatings.com is proud to actively participate in Jump$tart's financial