An ‘expert’ in Chicago says teens as young as 16 years of age should be given the chance to charge (i.e. to have their own credit card.) Surely this is a joke? Sadly no, it is a story from Fox News in Chicago.
What the, Fox?
There is a reason that Obama has legislated against some of the predatory practices of credit card issuers in the US. Kids and credit aren’t a good mix. Hell, credit and just about everybody isn’t a really good idea, but we jump in anyway.
What’s the problem you ask? Try this statistic out : “84 percent of college students have at least one credit card, with their average balances totaling more than $3,000″ – reports The Cavalier Daily. How did they get these cards into the hands of most college students? By giving away free stuff (like tshirts & pizza), which is always a honeypot for a student.
The Credit CARD act :
“prevents people below the age of 21 from getting credit cards without proof of a stable income or an employed co-signer 21 years-old or older” – New University, Obama Creates Credit Card Regulations, Affecting Students
Back to the story – who is the expert? Mellody Hobson of Ariel Capital Management. According to this Forbes profile she is a director at Dreamworks, Estee Lauder, Starbucks as well as being the work at investment management firm Ariel.
Mellody Hobson
From her perspective, I can imagine she meets many people of above average financial intelligence. For those who can responsibly use credit to build a good credit score it may be sensible to start on credit as early as sixteen years old.
For the rest of us, which means you and I, my feeling is that we are better off without the temptation. Read
this article on the cost of weddings from Ramit’s I will teach you to be rich blog, it is a great read on how we really are likely to be part of the majority who do not have our finances in order. In this case, remember, fully 84% of college students are carrying an average balance of $3,000 on their cards. Are you certain your 16 year old will be able to stay so far under that average three thousand dollar debt load?
As a parent I feel the urge to ‘do something’ to help my kids along. Fortunately mine are not near 16 yet, so the credit card isn’t an issue. What would I do instead? Perhaps along the lines of the ‘Bank of Dad’ (where you create your own high interest bank at home on a spreadsheet to encourage savings) but allowing the kids to borrow money at punishing interest rates. In this way they can experience how fast the debt can spiral out of control without ‘real world’ consequences of starting adult life with a maxed out credit card. The book The First National Bank of Dad: The Best Way to Teach Kids About Money
Credit cards for kids? Just say “No!”
