Age 14, and Paying With Plastic
Parents and Banks Debate the Wisdom of Teen Credit Cards
Alex Sims, 14, pays for a purchase at the Tysons Corner Mall with his prepaid Visa Buxx card. (Michael Robinson-Chavez - The Washington Post)
By Sara Kehaulani Goo
Washington Post Staff Writer
Tuesday, April 3, 2001; Page A01
Fourteen-year-old Alex Sims says he doesn't have much use for cash anymore.
One recent Saturday afternoon at Tysons Corner, Alex watched a store clerk ring up $54.10 for a pair of size 11 1/2 New Balance cross-trainer sneakers and two packs of white tube socks. Then he handed over his Visa Buxx card.
By the end of the day, the shopping bill for Alex and his 16-year-old sister totaled $147.53, including a couple of big purchases as well as a $4 charge for Amanda's tiny blue rhinestone earrings -- all put on their Visa cards, which are linked to their father's bank account and have a spending limit equal to their weekly allowances.
"I pretty much use it for everything I buy, every day," Alex said.
Credit card companies have aggressively pushed their products to college students for years, despite criticism from consumer advocates who argue that many kids aren't ready for the responsibility. Now the industry is aiming even younger -- at teenagers in high school, or even middle school.
To some researchers and consumer groups, such products illustrate a growing debt problem among the young. They suggest a connection between easier credit for younger and younger people and a personal bankruptcy rate that is rising faster among those under 25 than for the population as a whole.
"The industry is pushing kids to get involved in the spending economy at an earlier age," said Robert Manning, a senior fellow at the University of Houston who has studied the impact of college credit card debt. Since most young people aren't given much education on how to handle their finances, he said, "It shouldn't surprise us that kids are getting into trouble."
Concern about young people's debt surfaced in the recent congressional debate over the bankruptcy bill. Lawmakers defeated an amendment opposed by the credit card industry that would have set a $2,500 credit limit for people under 21.
A survey of college freshmen last year by Student Monitor LLC, a Ridgewood, N.J., company that tracks college trends, found that 22 percent carried a credit card in their name during high school and 34 percent got their own cards after high school graduation. In 1994, only 11 percent of college students said they had acquired plastic in high school.
Consider a Web site for Capital One Financial Corp., a Falls Church company known for offering credit cards through the mail to 16- and 17-year olds, with up to a $1,000 limit with a parent or other adult co-signer. "For all of you out there who didn't think high school students could get a credit card, we're here to tell you YOU'RE WRONG!" the capitalone.com Web site reads, on a link to "High School Student Card."
"We at Capital One believe that establishing a good credit history starts early," the site says. "And, if you start out with good habits, you'll keep them as you go through your 20s and even your 30s and 40s."
Capital One said the card "may not be for everybody" but is ideal for teens whose parents are teaching their children about financial responsibility. Capital One typically starts teens with a $200 or $300 limit, said spokeswoman Diana Don. She said the company doesn't disclose how many customers have signed up but added, "We wouldn't be offering it unless the response rates were strong."
Capital One's offer is backed by a parent's credit and isn't issued to anyone under 16. In recent months, though, Visa and American Express have launched what Eric Weil, managing partner at Student Monitor, calls "a credit card with training wheels." The Visa Buxx card -- used by Alex and Amanda Sims -- and the Cobalt Card by American Express are debit-like cards available to children as young as 13.
"What we're calling it is your first financial responsibility card," said Desiree Fish, a spokeswoman for American Express. "It's a safe spending tool to start teaching them about financial responsibility, about where the money's going."
Some analysts say the industry's focus on the teen market is driven in part by the potential of online commerce. Teens are the age group with the most access to the Internet, but only an estimated $500,000 of the $153 billion they spent last year was spent online, perhaps because most don't have credit cards.
In Landover, Lorna Green, mother of two teens, said that several weeks ago her 16-year-old son Christopher found an MP3 player he wanted to buy from a Web site for $114, nearly $100 less than at Best Buy. "I had to go online and order it for him," Green said, and Christopher paid her back in cash.
Although she does not want her children to have traditional credit cards, Green said she would consider getting her sons something more limited, like the Visa Buxx card. "My 14-year-old handed me a magazine today, telling me he wants me to order something from Lego.com," Green said.
Parents sign up for the new Visa and American Express cards online, arranging for a certain amount from their checking account or credit card to be transferred to the teen's account. There are no interest charges or fees. Teens and parents are encouraged to check the balance and view purchases online. Credit card companies call it a "reloadable" card, saying it's more like a debit card because the parent controls how much the teen can spend.
Convenience and control are what motivated Lisa Sims -- Alex and Amanda's mother -- to sign them up for Visa Buxx. Every Friday, her husband automatically moves $50 into Amanda's card account and $30 into Alex's. "My husband has always been the allowance guy, and a lot of times I would have ranting and raving teens stomping their feet at 7 p.m. on Friday because Daddy's not home and they don't have their allowance," she said.
Visa and American Express are advertising the new cards to both teens and parents. Visa runs banner ads on teen Web sites and in such magazines as Ladies Home Journal and PC World. American Express featured the card in an episode of MTV's popular "Road Rules" show, in which each group of teens on the show was given a task to buy items using the card.
"There's a crying out for this teenager market," said Robert McKinley, chief executive of CardWeb Inc., a Frederick, Md., firm that tracks the credit card industry. McKinley estimates about 100,000 teens own such prepaid cards.
Some consumer advocates, however, say that even if it isn't a credit card, teens who get used to a prepaid card will be more inclined to pay with plastic when they turn 18. "We say, what you're teaching very young kids to do is spend more," said Travis Plunkett, a spokesman at the Consumer Federation of America. "Credit card companies are trying to target the youngest market before they have a real credit card to become comfortable with credit and comfortable with the card. It's really an effort to extend your market share."
Weil, of Student Monitor, said credit card companies "believe it's very important to be the first card in the student's hand."
Elizabeth Warren a Harvard University law professor who has studied Americans' increasing dependence on debt, said young people should be cautious about accepting credit. She said her research found that 120,000 people under 25 filed for bankruptcy last year, an increase of 50 percent since 1991. Overall, during the same period, bankruptcies rose 40 percent.
"People can get into financial trouble today in ways that were simply not possible 20 years ago" because of available credit, Warren said. "People are getting $20,000 in debt, one pizza and one pair of tennis shoes at a time."
Credit card companies argue that it's tough to link the increasing number of young bankruptcy filers to their marketing to young people when the overall number of bankruptcies has also risen. Also, they say schools, parents and other institutions need to better educate young people about personal finance to make sure they understand their responsibilities.
"There's absolutely nothing wrong with the way the financial instruments work," said Dara Duguay, executive director of Jump$tart Coalition for Personal Financial Literacy, a Washington nonprofit organization that researches and helps promote personal finance education from kindergarten through the 12th grade. The group is funded mostly by major credit card companies and banks.
Duguay said only a handful of states require schools to include personal finance in the curriculum. "The problem is young adults are not receiving this education and they aren't making the right decisions," she said.
Before their father handed over the Visa Buxx card, Alex and Amanda Sims said, he made them take a quiz on financial responsibility on Visa's Web site to understand how the card works. Now, they said, they're much better at managing their money and, because they don't carry cash, they spend less. "I used to spend way too much when I went out with my friends," Amanda said. "They'd say, 'Can I borrow $1, $5?' Now I say, 'I'm sorry, I don't have any cash.' "
Some parents agree, and see the teen credit cards as educational tools. "Our daughter has always been responsible financially," said John Borsari, an Arlington resident who puts his 16-year-old daughter Sara's $25 weekly allowance on her Visa Buxx card. "We just thought this was the next step for her."
Borsari said that when his daughter goes away to college, he's not sure he wants her to have a credit card; he may just load more money on her Visa Buxx card for her expenses.
For her part, Sara said she enjoys using the card, especially for purchases over $10, and said she never overspends. "My friends, they're like, 'Oh my gosh, you have a credit card!' " Sara said. "It's fun to pull it out at a counter and sign the receipt." |
