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When kids say: Show me the money

Some parents are shelling out pre-paid plastic debit cards instead

Some parents are shelling out pre-paid plastic debit cards instead

June 28, 2002|by KEVIN CLAPP

kevinc@herald-mail.com

Among the seminal moments in a young adult's life, wedged firmly between first car and right to vote, is the first credit card and the financial freedom it provides.

APR? What's that? Annual fee? No problem, cuz I can buy now and pay later. And if there's too much owed at the end of the month, I'll just whittle it down gradually.

I have credit, hear me roar! To the record store! To the mall! To the movie theater! No worrying about who'll pick up the tab. Credit is mine!

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But, like a certain web-slinging wall-crawler blazing a trail at the box office this summer, with great power comes great responsibility.

Meaning, eventually you have to pay when you play.

"What we're showing is there is an overconfidence among young people," says Don Blandin, president of the American Savings Education Council. "You have to make sure, if they are going to have either a credit card or debit card, that it is a tool to make payments on things they can make payments on. ...

"Ultimately, it comes back to bite you. Hard. And if you're a young person it can affect you in a negative way."

This is where a less incendiary option presents itself, a pre-paid piece of rectangular plastic that looks like a credit card and acts like a credit card but doesn't quite quack like a credit card.

You see, with Visa Buxx there is no worry of damaging credit ratings by not paying balances; pre-payment takes care of that.

Instead, parents have a real-world way of teaching kids about money so financial freedom isn't accompanied by the mistakes that lead to years of poor credit and high interest rates.

"What we're hoping to facilitate is a dialogue between parents and teens about good money management," says VISA America Director of Public Affairs Rhonda Bentz. "There's no question the teen market is a huge market. What we wanted to do was take a real methodical look at how to approach that market in a responsible way."

Set up as a debit card, the card has fees associated that vary depending on the bank issuing the card. Parents and children are encouraged to fill out the application for the card together online at www.visabuxx.com, where there are also several money management educational tools.

The Cobaltcard, established through American Express, was discontinued at the end of last year. Others, including the M2card and a Visa Buxx program conducted by CapitalOne, have been discontinued, though a message announcing the CapitalOne cancellation is accompanied by a note that in part encourages parents to apply for a credit card for their child if he or she is under 18.

But Bentz says the Buxx program was developed in 2000 in part as a way to create fiscally responsible youth able to better handle their finances as they grow into adulthood.

Based on figures from the first quarter of this year, the range of growth for the Buxx program has been 4 percent to 8 percent monthly since its inception.

As president of ASEC, Blandin likes to take products such as Visa Buxx for a test drive. He has a card, and says it is beneficial so long as buyers are aware that fees may apply and educational tools are taken advantage of.

Cards can come in handy if a teen's car breaks down and they need to pay for repairs. The card is accepted anywhere VISA is. But, like a gift card from a retailer, if the teenager loses the card, the money is gone.

"The question always comes up: Is my child responsible enough to have a debit card or credit card," Blandin says. "Well, does every adult you know qualify as responsible enough? Because many adults get into problems. You have to really assess what the kid knows about money."

According to an ASEC-sponsored 1999 Youth and Money Survey of 1,000 students aged 16 to 22, 55 percent of college students have a major credit card. Seven percent of high school students are card carriers.

Of those with credit cards, 28 percent of students roll over their credit card debt each month. That debt adds up, and parents need to gauge whether their children are ready to wield the power of plastic ... and deal with the consequences of abuse.

"The long-term cost is you'll always be wealth-deprived in perpetuity, and you need to keep out of that situation," Blandin says. "And if you get into that situation, they'll have plenty of company. That's the problem."

Since 1998, higher education loan provider Nellie Mae has conducted yearly studies of credit card usage. Published in April, statistics for 2001 reveal mixed views of how credit is used among young adults.

Some 21 percent of undergraduates have credit balances between $3,000 and $7,000; that's a 61 percent increase in the number of young people with high balances since 2000.

Yet, average credit card balances among the young adults surveyed are $2,327, a 15 percent decrease from a year ago.

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