Written by Loren Dunton, (1918-1997)
Founding President of the Institute of Consumer Financial Education
Why is the ICFE and Institute of Consumer Financial Education skeptical about credit cards for twelve-year-olds and teenagers? More logically "Why do young people need credit cards?" What do young teenagers need to buy with charge and credit cards? What purchases are so urgent that youngsters need to borrow money and pay interest rather than save-up first ... and also earn some interest?
Should we teach and make it easy to buy now and pay later? Is that really how we want to educate our children and grandchildren?
Have we forgotten our grandparents and great grandparents admonition to "save first so you can buy later"? Should we put borrowing ahead of saving and financial self-discipline?
Believe me, credit cards make saving very difficult. And many impressionable kids will learn to SPEND first ... and save later... if at all. Suppose some do become "educated" as to proper use of a credit card, and unlike many older siblings and parents, are at first able to refrain from buying things they can't afford. Will that be true as they get older with more things they want?
Do millions of people now paying twenty and thirty dollars a-month in 18 percent interest on credit cards bills do so because they were not "educated" and don't know any better? Of course not!
How much better off young teens are when the educational effort is used to intrigue them with the power of compound interest and the secret of dollar-cost-averaging? But this Young Americans Bank (Denver) is going to teach them to use credit cards responsibly? Of course some will be responsible, but probably most of that group would have been anyway. What about other kids who want this status symbol?
Will they be different from their parents, so many of whom are, as is the Congress in Washington, addicted to deficit spending? Should we teach teenagers that just because the government spends money it doesn't have they might also? All it takes is a credit card!
But what about the argument that the bank's motivation is only educational? Let's assume they aren't influenced by the desire to get some of that 18 percent money from another segment of our society. Let's even ignore the skeptics who say banks just want to get this tremendous market hooked on spending, borrowing (even eroding home equity) and especially credit card buying, as are many of their parents.
So what's left? As assumption that kids are going to grow up and use credit cards anyway, so they should learn to use them responsibly. On the surface that makes sense perhaps. Like other examples of surface thinking, however, it doesn't stand up under very much scrutiny!