Credit Card Debt Management

Teens can get exclusive access to MTV events – all they need is the MTV Citibank credit card.

The Baby Phat RushCard, a Visa prepaid capitalizing on a popular clothing brand, claims users can tell the world they are “just as savvy about money as they are about clothes.”

Wow, I thought financial savvy was more elusive than that. Where do I sign?

MTV and Baby Phat are just two of countless companies jumping on board the credit train to seize the day with an ever-younger audience – the one Visa USA has lovingly dubbed “Generation Plastic” (Chicago Sun-Times).

There are some differences between the MTV and Baby Phat examples:

• Visa’s Baby Phat is prepaid. In theory, a prepaid card works more like a debit card, preventing someone from spending more money than has been previously loaded on the card. Cards can be loaded with money via the Internet, telephone, bank or even the cash registers of participating merchants.
• No credit check with prepaid cards. Decent credit is not a prerequisite of owning a prepaid card, as is the case with a credit card (or opening a bank account/debit card, for that matter).
• Whereas credit cards usually have annual fees and interest, prepaid cards usually have monthly fees and transaction fees, so read the fine print.

These prepaid cards are absolutely the hottest thing going for teens. By co-signing, parents can get one for kids who are (typically) as young as 13. Parental message boards suggest that parents like these for the security they offer in case of card theft or loss, the convenience for globetrotting teens and the ability to track teen spending.

Some speculate – and I tend to agree – that these prepaid cards are being heavily marketed toward teens to acclimate them to credit card use. For the Visas and Citibanks of the world, there is a ton of money to be had from prepaid card fees now, but even more money can come later when the baby spenders graduate to credit cards.

Here’s an idea: Why not help a teen set up a checking account with a debit card? It offers all the same convenience of a credit card, the same ability to shop online and the same security in case of theft or loss. Bonus: parents can help teens learn the dying art of balancing a checkbook.

There are those parents who choose to add their teen as an authorized user on the family credit card account. This does not help the teen build their credit rating at all, but can be used as educational insight into the credit process. Some parents choose to set ground rules like paying off the balance at each month’s end and submitting all purchase receipts to undergo parental scrutiny.

About.com has some interesting information on the topic, including a poll showing parents overwhelmingly in favor of teen credit cards, but only when subject to parental control. Also worth viewing is About.com guide Mike Hardcastle’s list of teen credit card pros and cons.

Now, if you’ll excuse me, I have to go help my 13-year-old design his new PAYjr. Visa Buxx card.