credit cards

Educating teens about credit

We're living on a plastic planet, where even vending machines, parking meters and Starbucks branches are now accepting credit and debit cards for everyday transactions. Small wonder that high schoolers -- who were expected to spend $195 billion in 2006, according to a study by the Harrison Group -- hanker for their own charge cards.

"Getting a credit card is a rite of passage," says Todd Mark, director of consumer relations for Consumer Credit Counseling Service of Greater Atlanta.

In fact, a 2005 study by the Jump$tart Coalition for Financial Literacy reveals that 31.8 percent of high school seniors use a credit card. About half of these students have a card in their own names and the rest use cards issued in a parent's name. And of course, college freshmen get bombarded with credit card come-ons as soon as they set foot on campus.

Facing this prospect, plenty of debt-dubious parents wonder how best to introduce kids to the temptations of swipe-and-sign. As with most child-rearing decisions, the best course of action depends on the individual child. But thanks to an ever-increasing number of credit and debit options, savvy grown-ups can choose the card best suited to a teen's temperament, financial sophistication and maturity level.

Starting out 
Youngsters who already have a checking or savings account -- and that should be the first step in a kid's financial education -- are ready for a standard debit card because they're accustomed to keeping track of transactions, according to Marc Minker, a CPA and personal financial specialist at the New York City consulting firm Mahoney Cohen & Co.

Parents can rest fairly easy in this situation, since even the most acquisitive teen will find it self-limiting: Once the account balance drops to zero, theoretically, he or she has to stop spending.

And conveniently, many employers will deposit wages directly into a teen's account.

However, since a debit card is taking money from a checking or savings account, overdrafts and the resulting fees can happen. What's more, if Junior's money gets debited via fraud or error, or if there is a problem with a merchant, recouping the already-gone cash can be difficult.

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The Fair Credit Billing Act has different rules for liability with debit card fraud or theft. If you report the card missing before the thief makes any transactions, the issuer can't hold you liable for any charges. If you report the loss within two business days, you will be responsible only for $50 of charges. If you don't report the loss within 60 days, you can be liable for $500 of transactions. These rules make it important to check the account regularly to be sure there are no problems. However, debit cards from a major card issuer such as Visa or MasterCard carry the same fraud protections as credit cards, with zero liability.

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