Teens wrestle with credit card debt
It's no secret that many college students are quickly sucked deep into credit card debt. U.S. college seniors, for instance, carried an average of $4,138 in plastic debt in 2008, according to the Wall Street Journal.And, since roughly 70 per cent of Canadian students have a credit card, there’s no reason to think that things are any different here.
But, thanks to new U.S. laws aimed at protecting young adults from debt, this may be changing.
Starting next February, anyone under 21 who’s looking for plastic will have to prove they have the means to repay their debts – i.e., a real job – or they'll have to get adults to co-sign for their cards.
In theory, the joint arrangement allows parents to keep a rein on the card's limit, with Junior responsible for paying the bill in full. There's also the option of making your teen an authorized user of your credit card. Of course, this still means careless parents could get stuck if their child rings up a large amount of debt and falls behind.
That’s why, if they have concerns about responsible spending habits, some parents are switching to pre-paid or secured – where the card's limit is usually equal to the teen's savings account balance – credit cards for their children instead.
Prepaid cards work much the same way as gift cards with parents loading money onto the card which then can be used at any merchant. Trouble is, when operating on this controlled basis, many young people still don't master the tricky nature of credit.
And the cards aren't cheap. The MuchMusic card, for instance, charges a $39.95 "membership and activation fee" for the first year and another $9.95 in year two. It's $1.50 to load more money and a $1 a throw to take cash out of an ATM.
Tell us: How do you handle teens and credit in your house?By Gordon Powers, MSN Money