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HSFPP Weekly Update # 127—More Teens Getting Credit Cards

Message from Bob & Chris: In a recent update (# 119), we raised the question of whether or not teenagers should have credit cards. If you have not already used Update # 119, we highly recommend you do so now. Many parents agree with the article from that update that endorses giving teens credit cards with parental supervision. Although mature teens may be able to handle a credit card, it is not always the best idea to give a 13- or 14-year-old a credit card, as most of them don’t earn much money from their jobs compared with older teens, or especially compared with adults who have full time jobs. A good point the article makes is to tell about one credit union that educates teens before giving them a credit card. By working with your local credit unions and other financial institutions, you also can give students hands-on experience in addition to educating them about the pros and cons of using credit cards.

 

 Related Updates:

 See Update # 119 for other articles on the subject:
Update #119 - Should Teens Have Credit Cards? -28 February 2005

 

Website Pick of the Week:

 http://www.bankrate.com/brm/calc/MinPayment.asp

The bankrate.com Web site features a calculator to figure the true cost of paying the minimum each month on your credit card bill. It is a great hands-on activity for students.

 

Activity for Educators:

 Have students read this week’s article In the New$..., and then use the questions that follow the article to generate discussion. The student activity uses this week’s Web Site Pick of the Week.

 

In the New$.... More Teenagers Get Credit Cards

“FINANCIAL EXPERTS SURPRISED, WORRIED

“ New York – The credit-card generation is getting younger.

“A recent poll of teenagers who participate in the Junior Achievement program found that more than 11 percent are carrying credit cards, and some of them are as young as 13 or 14 years old. In addition, three out of 10 teenagers have checking accounts, and many are probably linked to automated teller machines with debit cards.

“‘We were a little surprised at the numbers,’ said Darrell Luzzo, senior vice president for education at JA Worldwide, which has its headquarters in Colorado Springs, Colo. ‘Having a credit card is not necessarily a terrible thing, so long as they're being educated about the appropriate financial principles.’

“But although 82 percent of the teen credit card users said they paid their bills in full every month, 18 percent said they carried balances over—a practice that has gotten a lot of their parents in trouble.

“‘That isn't great,’ Luzzo said. ‘After a little more education, we'd hope that 82 percent would rise.’

“Financial experts are concerned about the growing use of credit cards by teens, although they generally must be co-signed by parents until a child is 18 or older.

“‘I personally think that 13 to 14 (years old) is too young,’ said Laura Levine, executive director of the JumpStart Coalition for Personal Financial Literacy, a non-profit educational group based in Washington, D.C. ‘It really depends on the individual kids. ... Kids mature at different rates, so I don't think there's a single, magic age.’

“The key, Levine said, is the involvement of parents in teaching children how to use both credit and debit cards—and in monitoring their children's use of plastic.

“‘You don't give a child a musical instrument and say, “Plunk around on this for a while a see if you can learn to play,”’ she said. ‘The act of giving kids a credit card or a debit card isn't going to give them good money-management habits. There has to be teaching and practicing.’

“Levine suggests that parents who do get cards for their children sit down and go over their monthly statements, talking about things like interest rates, the importance of paying on time and spending habits.

“That lets them learn from their mistakes while they're still at home, not ‘when they're 18 and off to college or work and they're eligible for their own cards anyway.’”

Source: Excerpted from “More teenagers get credit cards,” by Eileen Alt Powell, Associated Press. From the LexingtonHerald-Leader, 4/19/05. http://www.kentucky.com/mld/kentucky/business/11429753.htm

 

Discussion Questions:

1. Do you have a credit card? No ___ Yes ___. If Yes, do you make your monthly payments on time, every time? Yes ___ No ___.
   
   
   
2. If you have a credit card, do you pay your full balance each month? Yes ___ No ___. If No, do you pay only the minimum balance most months? No ___ Yes___. If No, please explain why you sometime carry a balance.
   
   
   
3. For the purchases that a teenager typically makes, and with the limited amount of money most teens have, do you think it is necessary for teens to have a credit card? No ___ Yes ___. Explain.

 

Activity for Students:

 Complete the following activity from the Web site below. Print out your results and be prepared to discuss the questions in class.

Go to the Web site, http://www.bankrate.com/brm/calc/MinPayment.asp. This is a calculator for figuring out how much you would have to pay off on a credit card if you only paid the minimum each month. Calculate your minimum payment and how much interest you would owe with these three sets of numbers. It will automatically put in the minimum payment when you click in the text box. Click “calculate” to get the interest. Be prepared to explain the consequences of only paying the minimum. What else have you learned by doing these calculations?

Balance and Interest: $600 (at 9%, 18%, & 14%), $450 (at 9%, 18%, & 14%), $750 (at 9%, 18%, 14%).

 

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/fcs/hsfp

The purpose of this Web site is to assist county extension agents, credit union educators, and high school teachers in improving the economic well-being of our constituency, beginning with today’s students; and also, to assist teachers in Kentucky in meeting KERA’s goal that all students become technologically literate. Weekly Updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators.