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credit & debt

Best Time for First Credit Card

Credit cards can be a good financial tool. But kids can get into trouble if they rush to get one before they're ready for the responsibility.

Recently, a fellow journalist familiar with my writing remarked that I was against credit cards.

Actually, that's not the case. As regular readers of this column know, I think credit cards are fine once young people are mature enough to handle them. I encouraged my two older children to apply for cards when they were seniors in college, and they have established good credit histories to go along with them.

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When my youngest headed off to college this fall, his bank offered to send him a card with a $500 limit. We declined. I told Peter to hold off till he knew how much he'd spend and felt comfortable managing his bank account.

What I'm against is giving kids credit cards before they understand what they're getting into. Case in point: I recently met a young woman in her twenties who told me about her first encounter with credit cards in college. "The first thing I thought was free money," she said. "I started off by making the minimum monthly payment. Then I noticed I wasn't making a dent in what I owed. So I got angry and figured, Why bother to make the payments? I stopped, which wrecked my credit."

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For another case in point, here is the unedited text of an e-mail I recently received: "I just turned 18, and i have applyed for maybee 6 credit cards, and have gotten denied all 7 times, what should i do?" Frankly, I think credit-card issuers are doing this kid a favor by turning him down.

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It isn't just that teens need to learn how to count, spell and punctuate a sentence. Psychologically, their brains haven't caught up with up with handling the responsibility of paying for credit -- and realizing the consequences if they don't.

Research shows that young people are more likely than older adults to max out their credit. They figure that if the bank gives them, say, a $1,000 credit line, they must be good for it. Young people are also more impulsive, and there's a direct link between impulsiveness and credit-card misuse.

James A. Roberts, a marketing professor at Baylor University, has found that young people who use credit cards "are less price sensitive, spend more and overestimate their available wealth compared to those who write checks and pay cash."

If you don't give your teenagers a credit card, that doesn't mean you shouldn't give them advice on using credit wisely. Research also shows that the more information parents pass on to their kids about credit, the less credit-card debt their college-age students incur.

Next week: What teens need to know about credit.

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