|by Jason Steele|
In the run up to the passage of the Credit Card Bill of Rights, I expressed some concern over the provisions affecting young adults. Now that the bill is law, it is time to look at what actually passed, and what effect it will have on Americans ages 18, 19,and 20.
Not As Bad As I Thought
As the bill was originally described, no one under 21 would be able to get a credit card without parental permission. I thought it was outrageous that legal adults who could legally marry, join the armed forces, purchase firearms, enter contracts, and be held criminally liable for their actions, would not be able to apply for a credit card on their own. I now feel that these concerns were either unfounded, or that the ultimate bill that passed has addressed them.
According to this article, the law will only affect those young adults that do not have their own means to pay back their credit card bills. Frankly, I am shocked that companies have been granting credit cards to people who have no income. It is not hard to connect the dots that the credit card companies have been: 1) Trying to hook students on credit card debt while they are in college, and 2) Entice them to rack up debt that their unsuspecting parents would feel forced to repay. In retrospect, it seems like this is a reasonable solution to these problems.
The article does point out that it may be harder for consumers to develop a credit history. My parents love to tell the story about how they had to first apply for a Sears card, because they had no credit card history. After making a few small purchases and paying their bills, they then qualified for a gasoline station’s card. Only later, were they thrilled to get an actual Visa card.
In the future, it is easy to imagine a time where my children will have a similar experience. Perhaps they will first get a secured credit card. Call me an old coot, but I think the old way was better than the current method of giving out freebees on college campuses to anyone who applies for a credit card; no income required.
The article then speculates that credit card companies may require financial literacy courses as a prerequisite. This makes sense. I remember taking driver’s ed classes in order to get auto insurance as a teenager. I even had to take some little course to qualify for some government subsidized mortgage when I bought my first house. My only concern would be that such a course would be written by the banks themselves, and would not address the tricks, traps, and other negative aspects of credit cards. Do you think a bank sponsored course will spend much time teaching the desirability of paying your balance in full every month?
Adult Supervision Required
What this bill recognizes is that granting a student with no income credit is essentially asking the parents to co-sign a loan. At that point, the parents may as well just add their child to their account. I was given a card from my parents as a teenager, and it served several purposes. It was important to have it in an emergency, where I may need to purchase something unexpected. It was also a valuable tool for teaching me financial responsibility. My parents could monitor what I spent, and collect from my what I owed them. It worked well for me, and that is how my wife and I hope to teach our children financial responsibility. Frankly, I think that waiting until age 18 is probably too late. I would have my child carry a credit card at an even younger age, with the complete understanding that they are only to use it with my permission.
Earlier this year, I looked at credit card use among college students and offered some advice in that regard. In light of the new rules, it is worth taking another look at it.