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