Credit Reform Means New Lessons for Teens

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It’s been all too easy for any consumer to rack up credit card debt, but the temptation may be all the more fierce for teens eager to keep up with shopping trends among their friends.

Teenagers today are likely learning about credit cards from their parents, but after the recession brought on reduced usage and new credit card reforms, teaching kids about credit may be especially important.

Even though new credit card legislation limits what credit card companies can do to try and lure in their youngest customers, kids learn by watching the spending habits of their parents and other adults around them.

At the same time, one could argue that getting rid of the novelty and allure of using plastic may reduce the temptation to overspend, especially when there’s a set spending limit, and there are some easy-to-use tools that can do just that.

Teaching Tools

Visa Buxx, for example, are prepaid and reloadable cards that were first made available to teens in 2001. You can swipe it like a credit card, and kids as young as 13 can use them.

Certain individual consumer banks offer Visa Buxx (Stock Quote: V) cards, so the fees you’ll be charged may vary, but could include an enrollment fee, ATM fee, bank teller fee, declined withdrawal fee, balance inqury fee and an inactivity fee, according to the Visa Buxx Web site.

American Express (Stock Quote: AXP) has also recently launched its own prepaid card for kids called the PASS, after credit card reforms have made it more difficult for creditors to collect from new customers. Young adults under 21 now have to get a parent or guardian to co-sign for a new credit card account as a result of the new Credit Card Accountability, Responsibility and Disclosure (CARD) Act that was implemented earlier this year.

American Express said the card is for parents who want their kids to carry a safer alternative to cash. Parents will also be able to monitor transactions, receive balance alerts and add funds to the cards online, according to creditnet.com. Fees on the Amex PASS card include $3.95 per month plus a $1.50 ATM fee that’s charged to the card.

Large card carriers aren’t the only ones offering prepaid options for teens. The reloadable Allow card doesn’t charge annual or overdraft fees, but there is a $19.95 activation fee plus a $3.95 shipping charge. And for kids who could stand to learn a little self control when it comes to spending, parents can sets limitations on daily spending and number of transactions, among other things.

Still More Offers for Teens

Despite the CARD Act, kids still appear to be getting credit card offers from companies in the mail, according to creditcards.com.

The reform act banned pre-approved credit card offers from being given to anyone under 21 and banned credit card company representatives from promoting cards on college campuses, but kids can still receive “invitations to apply” in the mail.

According to the site, many such mailings are sent out without the recipients being pre-screened.

Lessons Learned

By making it harder for young people to get a credit card, kids today may be able to start off with the mindset that you shouldn’t spend what you can’t afford, since they’ll have to prove that they have the means to afford a credit card without getting an adult to co-sign their account.

And by starting early with a safer form of plastic that prevents overspending, kids can make purchases online without going too far.

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