Student Credit Card Tips for Parents (Part 3)
Written by Curtis Arnold
Posted On: October 28, 2008
Editor's Note: This article is the third in a four-part series containing consumer tips for parents of children and young adults.
By the time your children enter high school, it’s crucial that they can separate out the marketing messages related to the incredibly tempting card offers they’re about to get … if they’re not receiving offers already.
Watch out! Card issuers know how much money we spend on our teens – and how much of their own money they spend. High schoolers are still a relatively untapped market (“unserved” in lender lingo), and issuers are going after this market with “prepaid teen cards” -- some of which accept 13-year-olds.
In response, we have to “double-down” on our efforts to teach teens the importance of budgeting and making conscious choices about spending, borrowing, and saving. For help, I recommend:
1. CreditCardNation.com, the site of Dr. Robert D. Manning, author of Credit Card Nation (Basic Books, 2001). Take his financial literacy quiz with your teen, and check out his budget estimator, which offers average salaries for various careers. Play around with the numbers and let your teen try to make ends meet.
2. The Jump$tart Coalition for Personal Financial Literacy, which has an online database for parents and students interested in learning more about personal finance, including credit matters.
Should Your Teenager Get a Credit Card?
I see valid arguments on both sides of this issue. While I’d never advocate a card for every teen, there’s security in knowing that your teen has a back up for emergencies. Also, believe it or not, using a credit card is safer than using cash and offers more consumer protections than a debit card. If your teen's credit card is lost or stolen, chances are, there’ll be zero liability for unauthorized charges. But most important, in my humble opinion, is that your child will have had experience with credit cards and all of their hidden traps … before they’re deluged by the “No credit check, no co-signer or no income!!” offers when they reach college. Ultimately, though, there is no black and white answer on this issue and I think a lot depends on individual circumstances.
There are now many prepaid cards geared to pre-college teens (teens normally aren’t legally allowed to get a credit card in their own name until they’re 18).Visa’s Buxx card, for example, is promoted as being parent-controlled, re-loadable, and a great way to teach budgeting and money management to teens. When it first came on the market in 2001, the Buxx card sparked a great deal of discussion. Now, there are several versions of this type of card, with a variety of enrollment and reloading fees.
Don’t be surprised if you’re soon pressured to get one by your teen! These cards are marketed to them as cool status symbols that make it easier to get the latest “must-have” stuff. The best of them offer online tools designed to help parents teach their youngsters about money, credit, and debt. Some also try to motivate high schoolers to learn more about managing money. Unfortunately, some focus mainly on encouraging teen spending and just give the education component lip service.
Many parents are attracted by the convenience of these cards, which can eliminate much of the need to give cash to their teens – meaning they’ll be spared numerous trips to the ATM and bank. I can also see them being of some benefit to parents who want to modify Elisabeth Donati's advice, and use a card for some of the money being spent THROUGH their kids, not just ON them.
Another plus is that prepaid cards are a lot less risky than typical credit cards, where you’re the one whose credit will take a nose-dive if your child does something irresponsible with your card … like taking out a huge cash advance. With a prepaid card, there’s only so much your teen can spend (the amount that is loaded on the card).
Unfortunately, most prepaid cards come with all sorts of fees that really add up. So while I’m all for teens getting some real experience with plastic before they leave home, the current prepaid teen cards leave much to be desired. I’ll bet better teen cards will be marketed soon, and in the meantime, you have other options that can save on the fees associated with teen cards.
For example, you can get a low-limit credit card, and let your teen be an authorized user. The downside is that your credit rating is the one that will be on the line, because you’ll be the primary account holder. If you’re choose this option, make sure you limit your risk by asking for a very low limit on the card, such as $200 or $300. One upside to this option is that this technique may help your teen start to establish a credit history as some card issuers report authorized users to one or more of the 3 major credit bureaus.
A final option is to get your teen a debit card (aka check card), and give her or her instant access to their own money in their checking account -- not money borrowed from a card issuer. One potential negative drawback is that instant access means a thief can spend all the money in a checking account in minutes, leading to bounced checks, overdraft fees, and a major headache.
If you’re going to allow your kids to use debit cards, make sure to find out the bank’s policies on debit card liability... If your child’s account is exposed to fraudsters, it will typically take hours to straighten things out – including credit reports and scores – even if all the money’s returned and the fees reversed. For additonal help, you can visit our student credit cards section to research the best student cards!
Curtis Arnold, a nationally recognized consumer educator and advocate, has been educating consumers about credit cards since 1998. New! Curtis is the author of "How You Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line" (FT Press, 2008). He is also the co-author of the upcoming Complete Idiot's Guide to Person-to-Person Lending (Alpha Books/Pengiun Group USA, April 2009), a contribitor to The Ultimate Allowance (InnerWealth Publishing, 2008) and is extensively featured in 42 RulesTM for Driving Success With Books (Super Star Press, January 2009).