|CREDIT CARDS: |
BLESSING OR CURSE?
May 30, 1997
Your questions were answered by Independent financial advisor, Dave Ramsey, and by the American Bankers Association.
Should we pay off our debt or declare bankruptcy? How can bad credit be repaired? Should I take out a loan to pay off my credit cards? At what age should parents allow children to have credit cards? Should there be more restrictions on who can get a credit card? How do banks assess who can get credit, and who monitors the banks?
November 29, 1996
Economics correspondent Paul Solman analyzes rising consumer debt in the U.S.
American Bankers Association
Financial advisor Dave Ramsey
The Federal Trade Commission working paper on choosing and using a credit card.
The Federal Trade Commission working paper on solving credit problems
Consumer Handbook to Credit Protection Laws written by the Board of Governors of the Federal Reserve System.
Victims of Credit Reporting, a non-profit group, has a list of interesting credit related links.
Nerdworld has a library of credit/debt management links.
A question from Neil Penick,
At what age should parent's permit their children to hold credit cards? How can parent's introduce their children to responsible credit card usage and teach them the how to manage and limit credit card debt while they attend college and start their careers?
The American Bankers Association responds :
The technical answer to your question is 18. That's because under most states' contract law a cardholder agreement can only be enforced with an adult.
Even 18-year-olds need some coaching on how to use credit wisely. Once a person goes off to college or starts to live on their own, a credit card can become an important financial tool. In addition to tracking monthly spending, a credit card can help finance important purchases such as emergency health care, books or furniture. New users of credit need to understand that a credit card offers instant access to credit, not instant access to cash. What gets charged must be paid for.
If you are a cosigner on the account, ask the bank to send you a duplicate statement so that you can monitor the account. The first few times the bill arrives, sit down with your child to discuss the terms and how it will get paid.
As you shop for an account for your child, consider a secured card. Those cards allow customers to make purchases up to the amount that is held in savings at the bank. With a secured card, your child won't be risking his or her future credit report if mistakes are made. If you don't choose a secured card, help your son or daughter set up a low credit limit, such as $200, or whatever is appropriate for their situation.
Financial Advisor Dave Ramsey responds :
Neil, the age that a parent should permit their child to get a credit card is 150 years old. In other words, you should not teach your children to use credit cards. Credit cards are the most aggressively marketed product in our society and they are the most abused and pitiful financial product in our market place today. The most responsible thing you can do is teach your children to live on less than they make and pay cash for items, which causes them to spend less and get better bargains.
When your children are between the ages of eleven and thirteen you could teach them about using the Visa or MasterCard debit card. This is where they spend money and it comes directly out of their checking account. By far, the most important character trait that a parent can teach their child is good money management. I strongly recommend that you do not teach them to use a credit card at all.
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