University of Wisconsin - Extension

Contact Mary Fran Lepeska, 262-284-8291, mary.lepeska@ces.uwex.edu, Peggy Olive, 608-647-6148, peggy.olive@ces.uwex.edu, Mary Huser, 608-265-3589, mary.huser@ces.uwex.edu

Madison, Wis.--Are teens and credit cards a risky mix leading to debt and financial woes? Or do teens with credit cards have an opportunity to gain money management experience and a good credit history?

Teenagers spend millions of dollars each year in the U.S. economy. And as their consumer status has grown, so has their appeal to credit card companies.

Recent studies show that the majority of college students have at least one credit card. In the Midwest, most college students pay off their balances each month, but about a third do not.

"One way to build good credit is to use credit responsibly, which means paying off monthly balances on time," says Mary Fran Lepeska, University of Wisconsin-Extension family living educator in Ozaukee County. "Unfortunately, there can be serious problems in store for young people with ongoing credit card debt."

For example, by making only the minimum monthly payment, a 20-year-old with a $5,000 card balance and an annual 15 percent interest rate will be 36 years old and have paid $3,434 in interest before the debt is eliminated.

Parents can ask themselves some questions to help determine if their teen is ready to use credit responsibly.

Developing a spending plan is a great way to help teens understand what their lifestyle actually costs, says Mary Huser, prevention specialist with UW-Extension. Together, talk about income and expenses and have your teen write down all expenses and purchases in one month. "Teens are often amazed at how those sodas, energy drinks and snacks add up," Huser says.

Then compare the amount spent with the amount coming in. Set savings goals for things your teen wants to buy, such as a new CD, cell phone or clothes. Figure out how much money needs to be set aside weekly or monthly to reach the goals. Brainstorm ways for your teen to boost their income and then discuss those that don’t jeopardize family or school time.

"It's important for your teen to be able to distinguish between needs and wants," says Peggy Olive, family living educator with Richland County UW-Extension. "A need is paying for lunch and having clothes for school. Wants are eating fast food, buying the newest, most expensive sports shoes, or the trendiest clothes. Help your teen make smart decisions about using credit for purchases. Encourage them to ask 'How important is this purchase? How necessary is this item?'"

The reality is that credit should be used only for needs. If your teen wants to use credit, ask "If you charge this item, how will you pay off the bill at the end of the month?" The key is that teens understand that credit shouldn’t be used for anything and everything they want.

Make sure teens who already have credit cards understand the basics.

• Explain the real costs involved, including interest, cash advance surcharges or annual fees.
• Teach your teen to pay the balance in full and on time each month to avoid interest charges and late fees.
• Track credit charges and look for errors or changes in interest rates on your teen's statement.
• Remind your child not to give out their Social Security number or let others use their credit card. Teens need to protect their personal information both in the real world and in cyberspace.

For more information on teens and credit and on parenting teenagers, contact your local county Extension office, or visit the UW Extension Learning Store at http://learningstore.uwex.edu/Parenting-Teenagers-C76.aspx