It All Adds Up - teenagers with credit cards - Brief Article

Current Events, May 4, 2001

ASHLEY MORRISON, age 16, lives by the motto "Shop `till you drop!" Every other week, Morrison heads to a mall in South Bend, Ind., and spends about $160. "I spend it on shoes, getting my hair done, and clothes. I like Tommy Hilfiger and Perry Ellis. And I buy a bunch of CDs," Morrison said.

Morrison's shopping habits are not unusual. A fall 2000 survey conducted by Teenage Research Unlimited reports that U.S. kids ages 12 to 19 spend an average of $84 a week. In 2000, teens spent about $155 billion overall--$2 billion more than the previous year.

Why the increase in spending? The increase, say experts, has a number of causes. Some critics place much of the blame credit card companies for targeting teens and influencing them to spend more money than they can afford to. Credit card companies such as Visa and American Express are marketing "sponsored payment" (sometimes called prepaid) cards, including Visa's Buxx card, PocketCard, and M2card and the American Express Cobaltcard, to teens 13 and older. Here's how the cards work: A parent or other adult establishes an account and deposits money in it. The teen uses the plastic card (which looks like a regular credit card, with a magnetic stripe on back and the teen's name embossed on front) instead of cash when shopping.

The Bucks Stop Here

Critics say the new cards are simply an easy way to get teens in the habit of using credit cards, which could lure them into habitually piling up debt later in life. Eric Weill, of Student Monitor, a company that studies college trends, calls the new cards "credit cards with training wheels."

Teens aren't ready for the financial responsibility that using credit and sponsored payment cards requires, contends Robert Manning, a professor at the University of Houston. "Since most young people aren't given much education on how to handle their finances, it shouldn't surprise us that kids are getting into trouble," he said.

Born to Shop

Proponents, however, say that using such cards can teach teens how to manage money. Holly Berger, a spokeswoman for Bank of America, which sets up accounts for Visa Buxx, said, "We think this is a great tool for parents to teach financial responsibility at an early age, to talk about where kids are spending their money."

One of the benefits of sponsored payment cards, according to some people, is that the cards allow teens the convenience of shopping online. Without their own credit cards, most teens can't buy goods online. In addition, some cards block online purchases of items such as cigarettes and alcohol.

Are prepaid bankcards for teens a good idea? Why or why not?