The good news is that this generation of teens are seeing the massive amount of debt their parents and friends are incurring with credit cards and 38% don't think it is a good idea. The bad news is, 62% think it is ok to have credit card debt as a teen.
Plastic is a hot teen accessory
Credit, debit card youths' increasing use concerns many
By LESLIE A. PAPPAS, The News Journal
Posted Sunday, January 28, 2007
Amanda Jett (left), 17, was a little older than her 14-year-old sister, Brittany, when she started paying with plastic. Though Amanda uses a debit card, she said she's not ready for a credit card, and her parents agree.
The News Journal/WILLIAM BRETZGER
Amanda Jett has paid with plastic since she was 15 years old.
The 17-year-old from Bear uses her PNC Bank debit card, linked to a checking account her mother co-signed, to buy gas and occasionally clothes.
"I'd rather carry it than cash," she said.
She's not alone. Whether their wallets hold debit or credit cards, teenagers under 18 are using plastic more than ever.
According to Teenage Research Unlimited, a research firm based in Northbrook, Ill., 15 percent of teens ages 16 to 17 have their own debit card, and 5 percent have a credit card in their name.
"Recent research shows that the fastest growth of credit-card use is among 16- to 18-year-olds," Robert Manning, the author of "Credit Card Nation," told the U.S. Senate Committee on Banking, Housing, and Urban Affairs last week.
Children under 18 are unable to apply for a credit card on their own, but can become an authorized user on a parent's card.
Now credit card companies are trying to increase the amount teenagers put on plastic by introducing new products like prepaid credit cards, such as the VISA Buxx card or MasterCard's Allow card, which are essentially gift cards that teens can use at any retailer. Parents and authorized adults, such as grandparents or employers, can load money onto the card. Card companies profit through fees.
Credit-card issuers "definitely are aiming at teenagers," said Ellen Cannon, who covers the credit card industry for Bankrate.com. "It's an untapped market. There are millions of them."
And they're spending more every year. America's 33.5 million teenagers (ages 12-19) spent a record $179 billion in 2006, Teenage Research reported in its fall 2006 survey.
Some financial educators worry that teenagers won't be able to handle credit cards.
"Cognitively to really understand the nature of credit, it doesn't really hit until we're 23 or 24 years of age," said Maria Pippidis, who teaches financial literacy classes at the University of Delaware's Cooperative Extension. As a group, teenagers are often unaware of the pitfalls of credit, she said.
Part of the problem is that many teenagers don't have good examples to learn from, said Robin Smith, who teaches personal finance classes at Smyrna High School. She advises her students to freeze their credit cards in a block of ice if they're not able to pay the entire bill off each month.
"Many of them comment, 'My father should be in here,' " Smith said.
Credit-card debt in the United States has skyrocketed to $872 billion. As a nation, Americans now charge over $1.8 trillion on more than 640 million cards annually.
Senate Banking Committee chairman Christopher J. Dodd, D-Conn., pointed out last week the average American household has more than $9,300 of credit-card debt.
But there are signs that America's teenagers may be growing up more financially savvy than previous generations.
Hannah Rittenhouse, 17, of Newark, said she buys what she wants with the cash she earns at her job at Friendly's restaurant. She doesn't have a credit card and doesn't want one.
"I'd end up getting in debt with it," she said. "Once I get cash it burns a hole in my pocket."
Amanda said she's not ready for a credit card either, and her parents agree.
"We would probably never consider credit cards at that young age," said Amanda's father, John Jett. "We're trying to instill in her that you only purchase what you can afford."
A Teenage Research survey in 2004 showed that teens, though familiar with plastic, are wary of credit card debt. About 38 percent of adolescents 12 to 19 said cards should be limited to adult use. Only 3 percent believed it was OK to make purchases on a credit card without having the money to pay off the full monthly bill.
"I think they're very realistic about debt," said Teen Research's vice president Michael Wood. "If there's one word to describe this generation of teens, it's pragmatic."
Wood also said that this generation, which has grown up counting cell-phone minutes, has learned earlier how to manage credit-card-type accounts. Open discussions with their parents about finances has made many more aware of the dangers of debt. And the increasing use of cards in general has taken the cachet out of owning a credit card.
"Their wallets are full of plastic, whether it's a phone card or a gift card or an ATM card," Wood said. "It's no big deal."
Contact Leslie A. Pappas at 324-2880 or lpappas@delawareonline.com.
WHICH IS RIGHT FOR MY TEEN?
DEBIT CARD
Pros: Uses money in checking or savings account. Easy to set up.
Cons: Risk of overdrafting account and incurring fees. Does not build credit history. Must report lost or stolen card within two business days or may be liable for $500 of unauthorized transactions.
PREPAID OR STORED-VALUE CARD Pros: Spending limited to amount loaded on card. Online checking of balances and spending. Authorized adults can load funds. Employers can load wages onto some cards. Can be used many places.
Cons: Fees are charged for activation, loading money, monthly maintenance and many more actions. Does not build credit history.
JOINT CREDIT CARD Pro: Builds credit history.
Con: Parent and teen responsible for debt.
SECURED CARD Pros: Credit limit set by savings account balance. Builds credit history.
Con: Fully collateralized account may have higher interest rate than noncollateralized account. Really.
AUTHORIZED USER
Pro: Easy to set up.
Cons: Teen can piggyback on parent's credit history. Parent solely responsible for debt. Potentially puts parent's credit score at risk.
Source: Bankrate.com
Sunday, January 28, 2007
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