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Start now to teach pre-college teens good credit management

Looking for a way to teach credit basics to a college-bound teen? Consider letting them use a low limit credit card.

Experts point out that it is far better for teens to learn the ins-and-outs of credit and money management with a low limit card while living at home -- when the parents are there to step in if necessary -- than later on when they are struggling with the demands of college or a first job.

"If they're going to make a mistake this would be the time to do it," said Charlotte Newton, a vice president of consumer affairs at MasterCard.

Two choices
There are two ways to put a card in a high school student's hand. Some issuers such as Capital One market lower-limit cards to parents with teens as young as 15. While the card offers are addressed to the "parents of ... " the bills and the cards bear the name of the teen, not the parent. Parents serve as co-signers.

"The credit limit is a lot lower -- $300 to $1,000 -- so it gives training wheels to the student. It's a good way to learn responsibility," said Diana Don, a spokeswoman for Capital One.

Parents may also simply list their teen as a "user" on a new or current credit card.

"Without a doubt, young people who get this lesson will be better off in the long run," said Steven Sanders, president of a money management firm in Philadelphia and a spokesman for Citibank's Money Matters for Young Adults program.

"They'll go into college and into the work place with an understanding of how to use credit wisely."

Talk sooner, not later
The key is to talk credit basics with teens early, and before handing them a card.

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"We encourage parents to take half an hour with their children and go through a credit card statement," MasterCard's Newton said. "What's an interest rate? What are the fees? What happens if you go over the limit? What happens if you're late?"

Be sure to set some ground rules. Is the card reserved for emergencies or specific purposes such as back-to-school shopping? How much is the teen expected to pay?

Sanders believes teens learn the most when they are expected to pay their own way.

"It's absolutely critical that parents allow young people to pay the bill themselves," Sanders said. "It's one thing for mom and dad to pay. It's another thing to see their piggy bank, to see their pile of money reduced by paying the bill -- then it's real."

Let go, but observe
Once the ground rules are set, take a step back and let the teen handle things. In fact, one of the biggest problems is when parents get too involved.

"They take over the process and the child misses out on the lesson," Sanders said.

One way to keep a teen's spending from getting out of hand is to keep the card's credit limit low. Parents should be ready to be persistent with card issuers who are apt to keep raising the limit.

"Even if you were able to get an issuer to give you a card with $1,000 limit, I bet in six months your limit would be increased to $2,000 or $3,000," said Steve Bucci, president of Consumer Credit Counseling Service of Rhode Island in Warwick. "It will take effort to keep it low."

Parents should also keep in mind that teens may apply for a card in their own name when they turn 18. Don't be surprised to see credit card offers addressed to a son or daughter, well before their 18th birthday.

"Once they're a junior or a senior it would not be unusual for them to have a card themselves," Bucci said. "The card issuers aren't looking to see what grade they're in."

-- Updated: Jan. 7, 2002

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See Also
Credit management tips for parents and teens
Teens targeted for plastic attack
Understanding credit card contracts

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