Credit card use can be both a blessing and a curse for an average teen, depending on their responsibility and money management skills. Unfortunately, issuers don’t concern themselves with the negative impacts of their products on your child’s long-term financial stability.
To help you protect your teen, this guide will show you how to teach them about proper credit card use and how to defend themselves from common marketing tactics. You’ll learn why teens are a huge target of credit card companies today so that you can take the appropriate precautions.
Why Are Teens a Major Target of the Credit Card Industry?
There are several reasons why college students are among the main demographics for credit card companies:
- Their impulsiveness and lack of proper education
- Parents’ support in repaying the debt
- An opportunity to get them used to credit early
Teens Are Prone to Making Poor Spending Decisions
Source: Blake Wisz
When your child goes off to college, they’ll want to get the most out of their newly discovered freedom. More often than not, this involves excessive spending. Parties, dining out, and occasional luxuries make it easy to stack up significant debt.
Credit card companies are aware of this, and many use teens’ impulsiveness as the basis of their marketing efforts.
Besides, many teens need credit even without any over-the-top purchases. They might need money for books and additional materials, in which case a credit card seems like a perfect solution.
The problem is that not every teen can control themselves and stick to the necessary purchases without excess. This makes them more likely to overspend, which means the credit card company makes more in fees and interest.
Most Parents Would Jump In To Repay the Debt if Needed
Many teens don’t think about the long-term consequences of their actions, so they may not realize the importance of timely card repayments until they’ve already amassed excessive debt.
If your child doesn’t have a stable job or another way of paying the lender, they’ll likely come to you for help. As much as you might want to use the situation to teach your child a valuable lesson on responsibility, there’s a high chance you’d repay at least some of the debt.
Credit card companies know that every parent wants the best for their child and that the balance will be repaid even if the child isn’t responsible. A combination of a teen’s potentially reckless spending and a near-certain backup for repayments makes young people ideal clients.
Teens Are Easily Influenced by Lenders’ Tactics
Teens can easily mistake a credit card limit for the available budget. Many tend to overlook the fact that they’re spending someone else’s money, so they get used to paying for everyday items and activities with credit cards.
This habit can be hard to break, especially if the teen struggles to meet their needs from their income. The result is a perpetual debt for which the card company will charge hefty interest.
Pair this with all the perks and rewards offered by many companies to incentivize spending, and you can see how easy it is for a teen to tie themselves to the lender. Knowing all this, credit card issuers try to attract them in numerous ways.
How Credit Card Companies Market to Teens
Source: Kindel Media
Card issuers rely on various tactics to make their products appealing to teens, despite the fact that many can’t obtain one independently. The CARD Act of 2009 aims to prevent irresponsible spending by prohibiting banks from issuing credit cards to anyone under 21 unless they meet one of the following two conditions:
- The applicant can demonstrate an independent ability to repay the debt
- They have a co-signer over 21 who can be held responsible for the card
To further protect teens from making impulsive decisions, federal regulations don’t allow credit card companies to gift any tangible items as a sign-up incentive if they are:
- On the college campus
- Near the premises
- At any college-sponsored event
Many issuers try to circumvent the above limitations by running reward programs tailored to teens. They might offer the following perks:
- Signup bonuses
- Discounts with popular retailers
- Free memberships for various services
None of the above is a tangible incentive, so it’s perfectly legal to use as a compelling way to draw in college students and other teens. You need to teach your teen to resist such tactics and avoid making hasty decisions that might cause long-term damage to their financial future.
How To Help Your Teen Approach Credit Cards the Right Way
There’s nothing wrong with your teen having a credit card, as long as they don’t decide to obtain one haphazardly before they’re ready as a result of clever marketing. This is where some financial education can make a world of difference.
Teach your child that however attractive the offer may be, there’s a negative aspect of credit cards that many companies don’t talk about. No perks can make up for the risk of extensive debt and long-term damage to their credit score.
Chances are your child won’t learn about credit cards in high school, so you might have to teach them all they should know. Emphasize the responsibility that a card carries and explain that any used credit funds come at a cost.
You can also support your child by making it easier for them to obtain a credit card at favorable terms when the time comes. The best way to do this is to help them build credit early on.
The Value of a Strong Credit Profile
Ideally, your child will enter adulthood with a solid credit profile that can open many doors. Establishing a profile with a credit card can be risky, as their first credit score might be low if they’re not responsible enough.
Besides, waiting until your child qualifies for a card might make them waste a lot of time. That’s why some parents decide to add children as authorized users of their cards. This gives them some hands-on experience with borrowed money and creates a credit profile sooner.
Still, this method also involves significant risks. Your child will inherit your credit history, and any red flags will show up on both reports. The child also won’t build an independent credit profile but merely piggyback on yours until you remove them from the card. When you do, all credit history associated with it gets deleted from their profile.
If you’re looking for a more reliable way to set your child up for a more financially sound future, Austin Capital Bank created an excellent solution—FreeKick.
FreeKick—Effortless Parent-Sponsored Credit Building
FreeKick builds credit for children ages 14–25 by combining a Federal Deposit Insurance Corporation-insured (FDIC-insured) deposit account with additional services.
You can sponsor your teen’s credit building by placing a one-time deposit and choosing from three available plans:
|FDIC-Insured Deposit Amount||Plan Fee|
When you decide on the plan, you can get started in three quick steps:
- Create an account
- Set it and forget it
- Keep growing
Create Your Account
You can go to FreeKick.bank to place the deposit and create your account. You and your child will e-sign all the relevant documentation to activate it, so you can get started without trips to the bank and other complications.
Set It and Forget It
When your account is active, FreeKick starts building a credit history for your child. Your teen will get 12 months of credit history without any ongoing action required from you.
The credit history will start getting reported to credit bureaus if your child is a legal adult. If they’re a minor, they’ll go through a simple process to activate reporting when they become one (typically when they turn 18). This is because credit bureaus only accept credit reporting for adults.
After the 12-month term ends, you can renew the account and build more credit history for your child (up to 48 months). You can also choose to close the account, and your deposit will be returned.
The account can be closed before the end of the 12-month period, and you won’t incur any early cancellation fees. Still, if you close the account while the child is still a minor, no credit history can be reported unless they become an adult in the meantime.
Keep Your Child’s Credit Profile Clean and Protected With FreeKick’s Monitoring Services (Coming Soon)
Credit bureaus aren’t infallible, and many situations can lead to errors on your child’s profile. To ensure your child’s information is accurate, you’d have to request their profile from the bureaus regularly.
FreeKick takes this task off your hands by providing various credit profile monitoring services. They come included with each account at no additional cost, so you can enjoy peace of mind knowing your child’s profile is closely tracked.
More importantly, ongoing monitoring reduces the chance of identity theft, a crime affecting one in 50 U.S. children annually. Instead of typical impersonation, children are at risk of synthetic identity fraud, where the perpetrator combines their Social Security number (SSN) with fake information to create a new identity.
To safeguard your child’s private information, FreeKick offers the following services:
|Service||How It Works|
|Credit profile and SSN monitoring||FreeKick tracks all names, aliases, and addresses associated with your child’s SSN|
|Dark Web monitoring||Using the CyberAgent surveillance system, FreeKick monitors internet activity associated with the trading of personal information|
|Full-service ID restoration||If your child’s identity is stolen, a certified restoration specialist will dispute all fraudulent activity and restore it. FreeKick’s $1 million insurance reimburses all ancillary restoration services|
|Neighborhood sex offender monitoring||You’ll be alerted if a sex offender living in your vicinity registers with a new name and uses your address|
Young adults can enjoy additional protection to avoid falling victim to fraud:
- Lost wallet protection
- Change of address monitoring
- Payday loan monitoring
- Court records monitoring
To make your child’s future easier without risks and keep their credit profile free of issues, create a FreeKick account.
Featured image source: Andrea Piacquadio