Card issuers target teens for
latest plastic attacks
Editor's note: Please go here
for a more up-to-date story on teens and credit.
Your 16-year-old has just received
a major credit card with his name on it and a $1,000
spending limit. If you dropped him off at the mall,
or left him home alone to shop online, would he
have the knowledge and maturity to use it wisely?
If that scenario makes you nervous, like giving
him the car keys the first time, he might not be ready to charge
forth into the tricky world of plastic money.
Many teens don't know enough about borrowing
to use a credit card, but issuers know a lot about them, and they
want their business.
Credit card companies, which keep a hawk's eye
on demographics, are swooping down on young consumers. Initiating
the quest for kids under age 18 is Capital
One, one of the nation's leading issuers.
The Virginia-based company is targeting high
school juniors and seniors with a co-signed MasterCard that is solicited
through the Internet and mailings addressed to their parents.
The card has a stiff 19.8 percent fixed annual
percentage rate and no annual fee. Credit limits range from $200
to $1,000. The child gets the card -- and the bill -- in his or
her name, but the parents are legally responsible for the account.
"We've had the program for a long time and it's
done really, really well," says spokeswoman Diana Don. "A lot of
people in this age range already have an income and a credit bureau
is ripe for picking
The minor-age market is ripe for the picking. The number of
teenagers is growing and they're spending more money.
There are 31.3 million kids between the ages
of 12 and 19 in the United States -- about 11 percent of the population
-- according to Teen
Research Unlimited of Northbrook, Ill. Their numbers are expected
to increase until at least 2010.
More teens are working full- or part-time jobs
and spending their own money -- as well as a little more of mom
and dad's. In 2006, youngsters shelled
out $195 billion of their own green, compared with $94 billion in
1999, according to a Harris Group survey.
A lot of that money is being spent online. Jupiter
Communications estimates that teens accounted for $1.2 billion in
Internet spending by 2002.
"Teens are becoming increasingly powerful consumers
and are trusted more and more by their parents to make family purchase
decisions," Teen Research's president Peter Zollo said when the
survey was released last October. "Teens know what they want and
are savvy when it comes to efforts to market to them."
Encouraged by those numbers, and the fact they
have saturated the adult card market, issuers are eyeing post-pubescent,
"It was college students and now it's getting
younger," says Dara Duguay, executive director of the Jump$tart
Coalition for Personal Financial Literacy. "I've noticed it
within the last year really heavily."
teens ready for plastic?
Jump$tart, a nonprofit organization based in Washington, D.C.,
says these fresh young things aren't ready for plastic. Every other
year, the group quizzes 12th-graders in public schools around the
country on topics such as paying taxes, using credit cards and retirement
On average in 2006, participants answered only
52.4 percent of the questions correctly, a failing grade. This was
marginally better than the results of the 2004 survey (52.3 percent).
The lowest was in 2000, when students scored an average of 50.2
Duguay blames the failure on the lack of personal
finance teaching in schools. Jump$tart's goal is to ensure that
students are financially competent by the time they graduate from
She says parents have to get involved if they
are going to allow their children to use credit cards. "It takes
supervision. If a parent has a co-signed card, they need to sit
down with them and show them what interest rates are.
"Credit cards can be a useful thing as long
as they're monitored. They can be an opportunity to learn before
going into the adult world."
Jump$tart, along with myvesta.org,
formerly Debt Counselors of America, helped Capital One develop
brochures that are stuffed into their teen customers' monthly credit
card statements. The inserts explain subjects such as introductory
rates, understanding the card statement, how compounding interest
works and managing finances.
"We get letters all the time from parents saying
the card is a really good tool," says Don.
Other issuers seem to be watching and waiting
before they jump into the teen segment. "We do perceive it as an
interesting market," says Deborah J. Pulver, spokeswoman for Fleet
Financial, another top
"That's not to say we won't do something in
the future. We need to make sure there is an educational component
with that as well."
Issuers such as Capital One who are reaching
out to minors with major credit cards must follow the same federal
disclosure laws they do for marketing to adults. Whether they are
selling by mail, telephone or the Internet, banks are required to
reveal costs such as annual fees and finance charges.
"Before the customer pays, the seller has to
disclose who they represent, the nature of the goods and services
and the total cost," says Carole Danielson, an investigator in the
Federal Trade Commission's division of marketing practices.
school districts have control
Other rules -- such as whether card companies can visit high
school campuses the way they do colleges -- fall to the states.
States, in turn, usually give that authority to local school districts.
If the policies of two of the nation's largest
districts are any indication, parents don't have to worry about
card companies setting up sales tables at their kids' high schools.
"If it's flat-out solicitation, we don't allow
it," says Janet Cass, who works for the Broward County School District,
which includes the greater Fort Lauderdale-Hollywood, Fla., area
and is the nation's fifth largest. "If the sole purpose is to come
in and sell a product, such as signing up kids for credit cards,
there is no educational value in that."
The Los Angeles Unified School District, the
nation's second largest, also prohibits solicitation on school grounds.
"We do not allow commercial ventures to come on to our campuses,"
says Dan Isaacs, assistant superintendent for school operations.
Cass says a lender might be allowed to talk
to students about credit card use and financial management, but
those requests are carefully screened by a committee that scrutinizes
lecture outlines and materials.
Card companies still have ways of branding their
names on young brains. Many schools work with corporations to sponsor
events. As a result, the lender might be allowed to hang a banner
in the gym or stadium.
Cass, who works in the Broward district's partnership
division, says they are approached by all sorts of interests. "You
see companies just drooling over the large market of kids," she
says. "They are a captive audience."
She says American
Express is very involved with the district, paying for luncheons
and other events.
"It's a public relations move to get their name
in front of kids and parents," she says.
Isaacs says credit card companies can advertise
in the school newspaper "just like they would in any paper."
Most credit card forms stipulate that the applicant
must be 18 years old, but just as there is no way to ensure a mischievous
minor won't sneak away to puff a cigarette or swig alcohol, there
is no guarantee a credit card won't fall into the wrong hands.
"A few years ago, I had a 6-year-old cousin
who found a credit card application," relates Cass. "He took it
upon himself to fill it out and mail it in. They sent him a credit
card in his name.
"He's 13 now and his mom still has it taped
to the refrigerator," she says. "I guess he had a pretty clean credit