Credit Card Companies getting young people hooked on Plastic


Jacquelyn Michels is the kind of sensible soul who initially didn't want to go anywhere near a credit card, which is probably why her mother could dare to hand her daughter a credit card at age 17.

"I didn't want one," said Jacquelyn, who will be a senior when she returns next week to Chippewa Valley High School in Clinton Township. "You know with credit cards, there's a lot of interest."

And we know that credit card companies are even more interested in promoting plastic, especially to college and high school students.

"Young people are the most prized niche market of the banking industry,"

said Robert D. Manning, professor of consumer financial services at Rochester Institute of Technology in New York.


A survey by college loan lender Nellie Mae showed that nearly three out of four college students used credit cards for school supplies and nearly one out of four used credit cards for college tuition.


Consumers who are 18-25 years old have even been dubbed Gen P. And the P isn't for paper. Forget cash. Forget checkbooks. Generation Plastic rarely leaves home without a debit card or a credit card.


Gen P parents and consumer watchdogs see the potential for real trouble.

"Until you learn how to manage cash, you're not likely to learn how to manage plastic,"

said Jean Ann Fox, director of consumer protection for the Consumer Federation of America.


Although all that plastic is certainly convenient, no one should expect teens or young adults to easily understand all the late fees, over-the-limit fees and the overall costs of borrowing.

"There's got to be a great level of conversation between the parent and the child,"

said Donovan Shand, vice president of retail product management for Comerica Bank in Detroit.

Follow up:

Comerica, which partnered with Elan Financial Services, introduced a Young Adult Visa Card in April for students who are 16 or older. A cosigner is required. The credit limit is typically $300 to $500, but it can be up to $2,000 if a customer wants.


The bank also offers a College Rewards card for students who are at least 18 years old and in college. A cosigner is not required for that card.

"We're not aggressively marketing either of these cards directly to the student population,"

Shand said.


Instead, he said, the cards are being promoted to parents who are customers of the bank. The cards allow teens to establish a credit history.


The rates on the cards, based on the prime rate, now range from 14.24% to 23.24%, depending on the credit history. The over-the-limit fee is $35. The late fee can be as high as $39 for balances of $1,000 or higher. Both the applicant and the cosigner would see their credit score hurt if payments were made late on the card.


There is no annual fee in the first year. After that, if the consumer doesn't make at least one purchase a year, the annual fee is $20.


But do teens need credit cards? I don't think so.


I got my first credit card after I had a college degree and a full-time job.


Earlier this year, I was startled to see a survey that said nearly one in five teens 18 and older had credit cards. And about 9.8% of 17-year-olds had credit cards, according to the survey by Junior Achievement and the Allstate Foundation.


Credit card critic Manning says high school students -- or even new college freshmen -- should not carry credit cards.


By easily tapping into credit, he said, young people do not learn how to base their spending on their income, not their aspired lifestyle.

"Essentially, it takes away the need to be an effective budgeter," he said. "Nobody talks about sacrifices anymore."

So what should parents do?


Hold that line


Manning's strategy: Use a debit card, which is connected to money in a checking account, for the first semester in college.


After the student proves that he or she won't overdraw the checking account with the debit card, Manning said the college student could get a credit card.


But start with a $500 line of credit. As the student moves toward graduation, he says, the limit can gradually be increased to $2,500.


That way, a student doesn't have a chance to graduate with $5,000 or more in credit card debt.


Jacquelyn's mother's strategy is to teach her daughter how to use credit and debit cards before she goes to college.

"I want her to get used to all the different ways of banking,"

said Kristine Michels, a vice president at Comerica's branch at Long Lake and Crooks roads in Troy.


Jacquelyn got her first job at a tanning salon. Her mother taught her how to deposit her paychecks, which amount to about $100 a week, at an ATM.


Jacquelyn uses a debit card to access that money to buy gas and other necessities. She has a checking account with her mother.


And no, things don't always work out well.


Early on, Jacquelyn withdrew too much and saw a $32 overdraft fee.


Her mother had to go directly to her boss to see whether the fee could be waived. A regular customer could call up the bank for one-time mistakes. But the rules are stricter for bank employees. Kristine Michels admits she was embarrassed even though her boss waived the fee.


Now, she and her daughter monitor the checking account with online banking. Her daughter has been told to immediately write down what she spends using the debit card and to adjust the checking account balance accordingly. Overdraft protection is set up using the credit card.


Kristine Michels said she's discovered that it can take a while for teens to get the knack of banking.

"It just takes time and I, as a parent, have to have patience,"

she said.


Her rules with that credit card: Jacquelyn can use her credit card for clothes and gifts, but not everyday purchases, such as fast food.


So far, Jacquelyn has used her credit card to buy a digital camera and a one-year anniversary gift for her boyfriend.


By using online banking, she paid some money on that debt even before the credit card statement arrived. But she still ended up owing a $2 minimum finance charge. Interest is based on an average daily balance, including new purchases. The grace period is 20-25 days for purchases only. She's now got the camera paid off.


This week, Jacquelyn may pull out that credit card at Lakeside Mall when she hits stores, such as Forever 21, for school clothes.


She likes learning how to use credit, but she understands why her friends do not have credit cards.

"A lot of teens want a credit card right now because they don't want to pay it back right away,"

Jacquelyn said.


Source: Susan Tompor for Detroit Free Press


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