This is a communication from a debt collector.

Talking to Teens About Debt and Credit

On March 26, 2010, President Obama signed The Credit Card Accountability, Responsibility and Disclosure Act (CARD Act) of 2009 into law. Among the sweeping changes, a person must be 21 years old to get a credit card, unless an adult co-signs for the credit card or proof of income is provided.

With this new regulation in place, the time is especially ripe for a serious discussion with your teenage children about debt and credit. Even if you believe they are capable and responsible enough to have their own cards, Portfolio Recovery Associates (PRA) recommends that you help ensure that teens understand a few essentials.

Tell them:

1. A credit card is a binding contract. By accepting a credit card, they agree to certain terms and conditions. They have agreed by law to pay for everything they buy, plus interest.
2. Their credit scores will be directly affected by how they manage their credit card debt — and that credit score may affect their ability to make major purchases for years to come.
3. Paying a credit card on time will actually help them build credit for the future. So the choice is theirs. They can either use the card to build their future — or misuse the card and damage their future.
4. A credit card is not a status symbol. It does not make them special. It is not a sign of adulthood. Credit card companies sell cards to millions of teenagers because they are willing to take a calculated risk when they do so.
5. The best way to pay the bill is right away and in full. Walk them through simple arithmetic: how, if they pay minimum amounts and pay them late, they can wind up owing thousands of dollars for years to come even though they’ve only bought hundreds of dollars worth of goods and services.
6. Don’t use the card when cash is an option. Again, talk about the importance of reading the terms and conditions in credit card contracts in order to understand interest rates and fees — and how they’ll actually have more money if they use their cards less often because of the potential of high fees.
7. If their friends use their cards, they — not their friends — are legally obliged to pay the bill. Make sure they understand the need to guard their credit cards as carefully as they guard their drivers’ licenses.

As parents, you should remember something as well. If you get them their own credit card and co-sign, they have the card, but you are financially liable. One alternative is to add them to your existing account so you can monitor all their transactions.