High School Student Credit Cards: The Good, The Bad, and The Ugly (Part 2 of a 2-part series)

Mike Killian, October 24, 2006

By Mike Killian, CardRatings.com Debt/Credit Management Reporter

In part one of this article series, the extent of high school credit cards was discussed by Laura Levine, Executive Director of the JumpStart Coalition for Personal Financial Literacy. Similarly, Dr. Robert Manning, author of Credit Card Nation, shared some very startling and revealing facts about younger teen credit card usage.

The facts were scary but is it right to keep a card from a teen until age 18 when he/she can get one on their own anyway? A credit card for many adults is an adventure in disaster at best. How can we as responsible parents allow our unsuspecting youth to enter the "world of plastic" completely unaware and without a shred of experience?

In 1997, I wrote an article called Credit Cards... Just Like Drugs. In it I said there was no better analogy. We use it (credit) and use it and use it until we can't live without it. Yet we live in an "age of plastic" and our youth must be taught to use plastic responsibly, even if we as parents have not. Sounds reasonable, right? But how exactly do you we go about doing that?!?

I don't have all the answers but I have tried to put together some ideas which might help.
  • Fellow writer Rebecca Lindsay offers some inspiring ideas in an article published on CardRatings.com entitled High School Students and Credit Cards - A Recipe for Disaster?. In it are some great resources for learning money management skills.

  • A great tool I have offered to many in my classes is the Debt Calculator offered through this site. There is no better hands-on teaching tool to illustrate how quickly compound interest can escalate.

  • Perhaps a debit card could be a useful "training wheels" approach. Purchases are deducted immediately from a banking account balance and may be refused if there are not adequate funds in the account to cover the purchase. The hope is that your child will learn to use plastic in a responsible manner, while limiting the potential pitfalls that are often associated with credit cards.

  • A prepaid credit card is another approach. Prepaid cards allow parents to set spending limits and monitor where their children are spending money, both through monthly statements and through Internet accounts that show daily transactions. Parents typically transfer money from their own checking accounts to the card for a small transaction fee, and the card can be used like any other credit card to make purchases.

  • Similarly a low-limit credit card may be a possibility. The drawback is that parents must co-sign for the account, but having a low limit will reduce parental exposure. Limits can be increased as responsible behavior is demonstrated.
Laura shared a few clarifications on these tips that I think are very important:

"Parents who get pre-paid cards or debit cards for their kids, as well as parents who co-sign a credit card for them, need to remember a few things: If your son or daughter is under 18, then you, the parent, are responsible for that card, not your teenager. A debit or pre-paid card is not perfect "training" for a credit card; they are good money management tools, but don't teach your child about interest rates, making payments, accruing debt, etc.--and these are the things that new credit card users seem to struggle with. A teenager isn't going to learn--or isn't necessarily going to learn the right things--simply by getting and using a credit card. I often use the analogy of a musical instrument. We don't buy our kids violins and hope they'll just plunk around until they learn how to play it. Why would we think kids will learn how to manage money simply by being given a credit card?"
Consider the alternative. If your teenager had a credit card at this moment, would you be willing to drop them off at the mall with their card? If not, perhaps parental training before they reach 18 is in order.

We welcome your comments about credit card and other money issues in our popular credit forum!

Mike Killian has been writing about credit and debt management issues that are of importance to consumers for over 8 years. His articles have been referenced by various members of the media, including MSNBC and The Motley Fool. Mike has also offered debt elimination seminars to businesses and community colleges for many years.

Mike offers free consumer advice on the CardRatings.com Credit Forum as well as on his own site, FreeMoneyTraining.com. While at his site, you can view additional articles as well as his schedule of upcoming seminars.

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This story ran on on October 24, 2006.