Helping Teens Manage Money

A new federal law that is aimed at the problem of credit card debt incurred by teens who take advantage of credit made easily available to them goes into effect this coming Monday, February 22nd. The new law, The Credit Card Act of 2009, modifies the Truth in Lending Act by prohibiting credit card companies from providing cards to anyone under age 21 unless they have a parent co-signer (who is also jointly obligated to pay on the account) or unless they can demonstrate sufficient income and assets to pay any amounts which might become due on the account.

In addition, no credit line increases are permitted on cards held by individuals under age 21 unless the co-signer/parent approves in writing and will be jointly responsibile for the additional credit. The new law does not affect debit cards, although new restrictions on banks limit the ability of banks to extend credit beyond the limits of the account to which the debit card is linked and then charge excessive overdraft fees when such excess charges are incurred. Still, parents need to be aware of the issues debit cards can create.

The new law targets credit card offers to students and requires colleges to make public any arrangements they have made with credit card companies to solicit students for card accounts. It also prohibits offers of credit that are accompanied by gifts or give-aways -- the free t shirt ,or umbrella, or some other item, if a student signs up for a credit card.

Finally, the law protects anyone under age 21 from prescreened credit offers, the "you have qualified for a credit card" mailings that come to your home for your 17 year old who can't manage his allowance and owes money on his library books. Nothing in the new law will keep young people from having credit cards -- IF their parents believe they can handle the financial responsibility that goes with them and if the parents are willing to stand behind their decision by being responsible for the debts their child may incur. And there is no impact on parents who decide to give their teen a credit card that is an additional card on the parent's account. What this new law does is put more authority in the hands of parents to educate their teens about credit, debt, and money and to remove the enticement of quick and easy credit from teens who are not ready to handle the consequences of their decisions.