Roseville, Minn. — At Rosedale Center, teens scurry between Hollister, Wet Seal, Abercrombie and Fitch and other favored retailers. And when they hit the check-out line, they're often paying with plastic.

According to the market research firm Teenage Research Unlimited, more than a quarter of teens under the age of 18 have debit or credit cards in their own names. About 15 percent have access to their parents' credit or debit cards. And teens who don't have plastic money are eager to get their hands on it.

"I'm going to get one, probably in the next few months," says Eric McKay, 16, of Shoreview.

But while his parents will soon entrust McKay with a credit card, they've let him know he better follow their rules.

"It's a lot of responsibility," says McKay. "I've got to make sure I just don't use it a lot because I have to pay it off."

About 8 percent of teens have credit cards in their own names. Almost always, their parents are co-signers on the cards.

More common among teens are debit cards tied to checking accounts. About 18 percent of teens have debit cards in their own names. Those cards generally require parental permission, too.

Then there are prepaid, stored value cards like Sasha McHale's. This category includes so-called gift cards. Many bear the logos of Visa, MasterCard or Discover. And the cards can generally be used anywhere credit and debit cards are accepted.

That's what Sasha McHale of Shoreview likes about her card.

"It looks like a credit card," she says. "It's like used everywhere and it's a Visa card."

Parent Barb Kraning of Mahtomedi says parental oversight is crucial when it comes to plastic money.

Teens with credit cards can do serious damage to their own and their families' finances. And a debit card can rapidly bleed a bank account.

Kraning puts her 14-year-old daughter's annual clothing budget on gift cards and hands over the plastic.

"If she runs out, we don't give her more,'' says Kraning. "If she needs clothing after she runs out, she has to suffer the consequences. It's been a good budgeting tool for us and her."

At first, Kraning's daughter didn't do well managing her money. But Kraning says now she's more frugal, less inclined to buy brand-name clothing.

The spending limits inherent in gift cards and other prepaid cards, such as US Bank's Visa Buxx card, appeal greatly to parents. David Robertson of the Nilson Report tracks the payment card industry. He's forecasting a surge in the marketing of prepaid cards aimed at the teen market.

"You are starting to see the beginning of a great expansion in prepaid cards," says Robertson. "The infrastructure is being put in place by Visa, MasterCard and Discover to create nationwide networks where those cards--once issued--can subsequently be reloaded."

Via the Internet, parents can load the cards with money they want to give their children. The cards work everywhere Visa debit cards are accepted. Minneapolis-based U.S. Bank is one of the leading issuers of Visa Buxx cards.

U.S. Bank has issued some 70,000 Visa Buxx cards.

"It's plastic with training wheels," says John Owens, who oversees U.S. Bank's Visa Buxx program. "It gets young kids used to the idea of budgeting. It gets them used to the convenience of plastic. But they can't get in any trouble. You can only spend what you have on the card."

Of course, that's not the case with credit cards. Many teens quickly amass credit card debt when they turn 18. Just like their parents.

So, should parents advise teens to just say, "no" to credit cards?

"Well, that's like the abstinence argument with sex," says Professor Robert Manning of the Rochester Institute of Technology.

Manning is an expert on plastic money and author of Credit Card Nation. He says you can't expect most college-age teens to resist the convenience and other charms of credit cards.

"The vast majority of their peers will be using consumer credit and it's better to train them about responsible use early than to have them unprepared and much more likely to get into serious trouble when they're outside the purview of the family," says Manning.

Teenage Research Unlimited, the marketing firm, estimates that about a quarter of 18- and 19-year-olds have credit cards in their own names. Eleven percent have access to their parents' credit cards. And a little more than half of 18- and 19-year-olds have debit cards.

Manning warns that students can get credit cards even if they don't have jobs, once they turn 18.

"I've seen many students the very first semester of college and they get access to few thousand dollars in credit cards and they actually go wild," says Manning. "And that first semester could make the difference whether they drop out of school or not."

Professor Sharon Danes of the University of Minnesota trains financial counselors and runs workshops on family finances. Danes says it makes sense to gradually introduce mature teens to credit and debit cards well before they turn 18. But Danes says it's important to start out with limited amounts of money and strong parental oversight.

"It gives them an opportunity to make mistakes with smaller amounts of money," says Danes. "So, you're talking about $10, or $25 or even $100 worth of mistakes versus $1,000 or more of mistakes when they're out on their own."

Eric McKay hopes he won't make any big mistakes when he gets a credit card.

"There's some times you don't have money in your pocket and you just pull out the credit card," he says. "But I would like to open up the mail and not pay bills."

 

This story ran on Minnesota Public Radio on January 10, 2007.