My kids watch closely as I swipe the card through the magic slot at the register. In their short lives it's something they've seen me do hundreds, thousands of times. Whether it's debit or credit their eyes don't differentiate, what they see is mom paying with the plastic card. Cool. They are itching to swipe it through the machine themselves. When we walk out of the store with our groceries or pet food,or whatever, it's almost as though money has not changed hands. Painless, easy. A clean get-away, or so it seems since they are relatively unfamiliar with balances and bills.
The cards are ubiquitous, convenient, and sometimes insidious. As the famous ad goes, although there are some things that money can't buy, for everything else....there's plastic. Even the classic, children's board games of Life and Monopoly now come in updated credit/debit card electronic versions instead of the old-fashioned, messy stacks of colorful paper money.
So it shouldn't be shocking to discover that teenagers are becoming card carrying consumers in their own right -- but it is. Technically, the legal age to get a credit card is 18, but parent's can add kids to their accounts, obtain pre-paid cards, or sign up for "student" cards with low balance limits. The question is, should they?
According to a 2008 survey by the Jumpstart Coalition for Personal Finance Literacy given to 6,856 high school seniors in 40 states, credit card use is up 34.7%, compared with a 32.2% increase in 2002. The organization, devoted to promoting financial curriculum for kids in grades K-12 , also reported that '08 seniors only answered 48.3% of the survey questions correctly, compared with '02s seniors who got 52.4% correct.
What did they miss? Less than half understood that a card holder who only pays the minimum payment each month pays more in annual finance charges than a card holder who pays the balance in full.
A whopping 87% said they did not know the maximum amount they could be forced to pay under federal law if their credit card was stolen. Sounds like a teachable moment.
However, while some argue it's best to teach kids how to use a credit card while still living under the family roof, not everyone agrees. Dave Ramsey, financial expert and host of the Dave Ramsey Show says getting a credit card for your teenager is actually, "an excellent way to teach him or her to be financially irresponsible."
In fact, Ramsey told WalletPop, " You are not teaching your 16-year-old child to spend responsibly when you give him a credit card. By giving a teenager a credit card, the parent, the one with the supposed credibility, introduces a financially harmful substance and endorses its use." And copping a line from Nancy Reagan, Ramsey says, "Parents must instead teach the teenager to just say no."
Sallie Mae's 2008 report, How Undergraduate Students Use Credit Cards, asked students if they had ever discussed credit cards with their parents. Two-thirds, or 65% said they had frequently, or sometimes discussed the topic. One-third said they rarely, or never discussed the finer points of plastic. The students in the latter group were also the ones who said they were the most frequently "surprised" by their monthly statement.
The study indicated that more freshmen are arriving at school already in possession of at least one card, and on a national average, carrying four. Credit card vendors are now restricted in their advertising and promotions on college and high school campuses, but they are still present. Credit solicitation to students is also achieved through direct mail, email, in-store promotions and from friend or parent referrals.
Of course, with grown up perks come adult-sized pressures. Nearly half, 45%, of those surveyed by Sallie Mae reported "high levels of anxiety" about paying credit card bills, and one quarter, 24% of students said they feel "extremely anxious."
In articles entitled, Help Your Teen Stay Debt Free in College and How to Talk To Your Teen About Money, Rochester, NY Bankruptcy Court Judge, Hon. John C. Ninfo wrote about two college-age teens who found themselves floundering with credit card debt. One was bailed out by his parents and went on to write a graduate paper on student credit card debt,. The second killed himself.
Ninfo also recounted the example of "Greg," a 19-year-old college sophomore who racked up $7,500 in credit card debt through online gambling. Class president and son of a minister, Greg became so desperate he robbed a bank. Ramsey documented similar despair in his article, The Truth About Teens And Credit Cards, noting two Oklahoma teens who committed suicide with the bills lying on the bed beside them.
Could extreme outcomes such as these be avoided through better education and preparation? At a 2008 joint news conference for the Jumpstart Coalition and the Federal Reserve Board, chairman Ben Bernanke said, "Today, only eight states across the U.S. require personal finance before middle or high school graduation. I believe more states should consider making personal finance a a requirement for all students who seek a high school diploma. I am personally convinced that improving education is vital to the future of our economy and all its citizens."
However, while schools wrestle with paying their own bills and worry about how to incorporate one more curriculum into an already crowded classroom, parents will have to find a way to have yet another "talk" with their teens. In fact, it's practically the law. Last month, the Credit Card Act of 2009 now requires parents to co-sign on credit cards for children under 21. "If their name is on the credit card, then the parent has a vested interest in saying, 'Hey, my name is on this. Don't screw this up,'" says Mary Beth Pinto, a marketing professor and credit card researcher at Penn State, Erie. Or at least that's what supporters hope.
"When parents were the co-obligors, the students incurred less debt," Pinto reports from a 2001 Penn State study she co-authored on parental involvement in college student's credit card accounts. "If the parents are the co-obligors, the tendency is the parents were sitting them down and doing the teaching. They were explaining how to use the cards."
Still, Pinto believes parents should start the process much earlier. "Yes, there has to be teaching going on and it has to start when they're younger. You're not going to get rid of credit cards. They are here to stay. You have to have them. You can't fight progress," Pinto said in article by Connie Prater,Law May Force Parents, Children to Talk About Credit Cards.
"Learning to use them responsibly is the practical thing to do."
Ramsey, however, disagrees. "Throwing teens into a pool of (credit) sharks is a sure way to guarantee a life-time of heartache," he said. "Over 88% of graduating college seniors have credit-card debt before they even have a job. Teenagers must learn lean to work, save, spend, and give under a mature parent's direction, so the child can avoid the messages that say a credit card equals prosperity."
WalletPop asked him when he would advocate allowing some plastic in the purse. "It's never a good idea for someone to get a credit card," said Ramsey. "You can make online purchases and rent a car with a debit card. Of course, you must have money in your bank account before you can make a purchase with a debit card. But, paying for things with money is what you are supposed to do."