Who needs an allowance?
Some teenagers, even as young as 13 or 14, are now carrying credit cards in their names.
Experts say teaching young people to pay with plastic can give them real-world spending knowledge. But letting a teen own a card without supervision could be a recipe for a long-term debt disaster.
Eleven percent of all teens now have credit cards, according to a Teens and Personal Finance poll conducted by Junior Achievement Worldwide. The organization educates young people about business, economics and entre-preneurship. The study showed that even 6 percent of teens ages 13 to 14 have credit cards.
Walter Bouchard, financial planner and owner of Bouchard & Associates--a branch of American Express Financial Advisors in downtown Fredericksburg--says credit cards can establish very good patterns of behavior, or some bad ones.
"The use of credit cards is not the problem," he said. "It's the use of credit cards accruing balances that can be a problem."
Teens under 18 usually need a parent to co-sign or include them as a joint owner of a credit card.
Many parents sign for their teen so that they will have it in case of emergency, learn about money management or establish credit early on, experts say.
But allowing teens to have that responsibility carries additional duties for the parents.
"You can't just say: 'Here it is. Learn how to use it,'" said Bruce McClary, corporate trainer and certified counselor for Credit Counselors. "That can potentially set the stage for disaster."
His Richmond-based nonprofit agency helps people with money management and debt repayment planning. The organization has a local office on Princess Anne Street in Fredericksburg.
A lot of late-teens to early-20-year-olds end up coming to see McClary or Bouchard because no one taught them about the pitfalls of credit cards.
"[Credit companies] make it available, make it convenient, but kids haven't developed the judgment, the understanding of what's really necessary," Bouchard said. "When you are in college, spring break is really necessary. When you are 30 to 40 years old, spring break is optional."
The younger teens are when they get a credit card, he said, the more time they have to get into debt. Teens may even be able to handle that debt until they move on to the next phase of life, where they have rent, school and bills.
"[Credit card] companies will let you get in a lot deeper than most people can get out of," Bouchard said.
He says such businesses often expect that young people will either work off their debt or have parents bail them out.
The number of 18- to 24-year-olds declaring bankruptcy has increased 96 percent in 10 years, said Alison Scott, Richmond-area coordinator for the Credit Abuse Resistant Education program.
Her organization takes judges, lawyers and other bankruptcy experts into schools to talk with students about financial literacy and credit abuse. C.A.R.E. is working to offer programs in all school districts served by the Richmond Bankruptcy Court, including Fredericksburg and Spotsylvania County.
"When someone spends time with [teenagers] and explains what's going to happen as a result of [credit use], their eyes really open up," she said.
Bankruptcy filings from younger generations are more directly linked to credit issues than those from middle-aged people, who are more likely to experience medical pitfalls or job loss, she said.
Many young people, she said, don't understand that bad credit can impact someone's ability to get a job, loan, insurance or even an apartment. Scott said a lot of young people are quick to sign on the dotted line when a credit representative offers them a free T-shirt at college orientation.
"The parent bears the responsibility of making sure their teen is mature enough to handle the responsibility of managing the credit card and repaying the debt," McClary said.
He recommends first getting teens involved in how the household budget is managed and how the bills are paid. Then try them out on a debit or secured card--which is backed by a savings account--he said.
A teen's credit mistakes will impact their co-signed parent's credit report equally, McClary said.
Leigh Gosper, senior bank services representative at the Falmouth branch of Union Bank & Trust, says teens should open a checking account as soon as they start working. But parents should be more cautious about getting their child a credit card.
"We want to make sure they understand and do a really good job [managing it]," she said. "We don't see enough kids being taught those important things."
To reach MEGHANN COTTER: 540/374-5434 mcotter@freelancestar.com