"A growing number of credit card companies are targeting young"
Teens and Credit Cards :::: A growing number of credit card companies are targeting young adults. Arm your teenagers with the knowledge to spend wisely. By Laura Kirkpatrick I n the ironically prescient 1960s movie The Graduate, Walter Brooks’ character, Mr. McGuire, imparts to the recent graduate played by Dustin Hoffman the wisdom that the future boils down to “one word. Just one word ... plastics.” In an unanticipated way he was right. When was the last time you paid for a big purchase with a check or with cash? He predicted not only our reliance on the convenience of a slice of plastic over wads of bills, but also tagged the market of “emerging consumers” to be addressed by credit card companies. Emerging consumers, to translate the marketing-ese, are teenagers — the final frontier of consumers who have not already filled all the slots in their wallets with bank and retail credit cards. But McGuire’s advice to The Graduate about plastics omitted any discussion on fees, interest, and the importance of a good credit score. More and more banks are marketing credit cards, some quite aggressively, to teenagers and on college campuses. These marketers know who they are talking to — a March 2008 study of credit cards on campuses by the U.S. Public Interest Research Group (www.truthaboutcredit.org) shows that cards offered contained tricks and traps that could easily increase the APRs to 36 percent or more. Credit card customers are some of the most profitable for banks and card issuers. Mismanaged accounts means the issuer earns even more through fees and charges. “Is teaching how to do the laundry really more important than financial life skills?” asks Sarah Bulgatz, Director of Corporate Relations for Charles Schwab. An online survey Kids with Cards of parents of teenagers done by Harris Interactive for Charles Schwab found that 70 percent of parents had taught their children about doing the laundry, while only 54 percent had broached the subject of money management. In 2007, a related online survey by Schwab on teens and credit cards found that less than half of the respondents felt they understood how a debit or credit card worked. Only 26 percent responded that they were very or even somewhat 20 ::: ::: www.aacreditunion.org ::: american airlines federal credit union ::: it all adds up american airlines federal credit union ::: it all adds up ::: www.aacreditunion.org ::: ::: 21 Teens and Credit Cards :::: a want. Sit down with your children and go over their bank statements with them. As your children, and you, become more confident in their ability to manage their accounts, you can introduce a debit card into the equation. Giving your children the life tools for financial responsibility is more than the math of adding and subtracting from a checking or savings account and balancing statements. Involving your children, as preteens, with the household finances can help teach budgeting from over spending, but it is also a trigger and set the importance of paying bills on credit rating bureaus look for. Consumer time. Each financial milestone — whether educational sites, like HSBC’s Your Money it is saving money for an iPod or all of the Counts (www.yourmoneycounts.com) and expenses associated with buying and owning Schwab’s Moneywise (www.Schwabmon- a car — presents the opportunity to teach eywise.com) have tools and calculators to about the power of compounding, good help with these discussions. debt versus bad debt, budgeting, and the As Katherine Wahlberg of Ameriprise importance of protecting your credit rating Financial Services points out, “When credit — keys to keeping your children out of the cards stop being a tool and start being a financial dog house. crutch to buy things you really can’t afford, “Conversations about personal finance that’s when they become ‘bad.’ Too often, with your children pay dividends in the people use the cards not as a substitute for future,” says Loretta Abrams, Senior Vice the cash that’s in their savings account but knowledgeable about how credit card the rest of their lives? President of Consumer Affairs for HSBC. as a supplement to that cash.” interest and fees worked. Bodnar, a mother of three, recom- “Right now, too much of the focus is By delving a little deeper into the con- In her research for her books Raising mends progressive communication remedial — helping people improve their versation about plastics, you can make Money Smart Kids: What They Need To between parents and children, begin- credit score and fix problems. Too many sure your children establish and protect Know About Money and How to Tell ning when your child is old enough people are entering into this complex their credit score, which can affect not Them and Dollars and Sense for Kids, to understand the concept of money, financial arena with too few tools and only their future purchasing power when author Janet Bodnar found that psy- usually around age 5 or so. As a child’s too little education. We need to change it comes to buying houses and getting the chologically, teenagers’ brains haven’t ability to understand complexities this paradigm.” best rates, but possible employment and caught up with the rest of their adult grows and he or she starts making Looking to provide your children with even taking the bar exam in some states. physiology. Children under 18 are, money, open savings and checking ac- the information Dustin Hoffman didn’t Riding off into the sunset with the person typically, not ready for the responsibil- counts with an ATM card, not a debit receive in The Graduate? Consider adding of their dreams, just like Dustin Hoffman ity of managing credit cards. Teens card. The act of withdrawing money, these phrases after “it’s all about plastics.” did in The Graduate — well, they’re on are impulsive and susceptible, making and watching their savings decrease, A credit card is not free money; it’s going their own for that. them ideal candidates for credit card teaches kids about the direct correlation into debt to another entity. Always protect companies. between money and their responsibili- your credit score by paying your bills on Located in Brooklyn, NY, Laura Kirkpatrick writes about So how do you talk to your chil- ties. Each withdrawal, researchers at time. Pay your balance in whole. Never max personal finance for Prosperity (www.prosperitymediaco. dren about financial responsibility Carnegie Mellon found, triggers a pain out your credit card (experts recommend com). When she’s not writing about business and money, without scaring them into keeping censor in the brain — no better way staying at 36 percent of your available she is the New Media Social Enterprise Fellow at Columbia their money under the mattress for to differentiate between a need and credit) — not only does this protect you University’s Business School. 22 ::: ::: www.aacreditunion.org ::: american airlines federal credit union ::: it all adds up american airlines federal credit union ::: it all adds up ::: www.aacreditunion.org ::: ::: 23