Card issuers target teens for latest plastic attacks

Your 16-year-old has just received a major credit card with his name on it and a $1,000 spending limit. If you dropped him off at the mall, or left him home alone to shop online, would he have the knowledge and maturity to use it wisely?

If that scenario makes you nervous, like giving him the car keys the first time, he might not be ready to charge forth into the tricky world of plastic money.

Many teens don't know enough about borrowing to use a credit card, but issuers know a lot about them, and they want their business.

Credit card companies, which keep a hawk's eye on demographics, are swooping down on young consumers. Initiating the quest for kids under age 18 is Capital One, one of the nation's leading issuers.

The Virginia-based company is targeting high school juniors and seniors with a co-signed MasterCard that is solicited through the Internet and mailings addressed to their parents.

The card has a stiff 19.8 percent fixed annual percentage rate and no annual fee. Credit limits range from $200 to $1,000. The child gets the card -- and the bill -- in his or her name, but the parents are legally responsible for the account.

"We've had the program for a long time and it's done really, really well," says spokeswoman Diana Don. "A lot of people in this age range already have an income and a credit bureau report."

Market is ripe for picking
The minor-age market is ripe for the picking. The number of teenagers is growing and they're spending more money.

There are 31.3 million kids between the ages of 12 and 19 in the United States -- about 11 percent of the population -- according to Teen Research Unlimited of Northbrook, Ill. Their numbers are expected to increase until at least 2010.

More teens are working full- or part-time jobs and spending their own money -- as well as a little more of mom and dad's. In 2006, youngsters shelled out $195 billion of their own green, compared with $94 billion in 1999, according to a Harris Group survey.

A lot of that money is being spent online. Jupiter Communications estimates that teens accounted for $1.2 billion in Internet spending by 2002.

"Teens are becoming increasingly powerful consumers and are trusted more and more by their parents to make family purchase decisions," Teen Research's president Peter Zollo said when the survey was released last October. "Teens know what they want and are savvy when it comes to efforts to market to them."

Encouraged by those numbers, and the fact they have saturated the adult card market, issuers are eyeing post-pubescent, Internet-savvy consumers.

"It was college students and now it's getting younger," says Dara Duguay, executive director of the Jump$tart Coalition for Personal Financial Literacy. "I've noticed it within the last year really heavily."

Are teens ready for plastic?
Jump$tart, a nonprofit organization based in Washington, D.C., says these fresh young things aren't ready for plastic. Every other year, the group quizzes 12th-graders in public schools around the country on topics such as paying taxes, using credit cards and retirement savings.

On average in 2006, participants answered only 52.4 percent of the questions correctly, a failing grade. This was marginally better than the results of the 2004 survey (52.3 percent). The lowest was in 2000, when students scored an average of 50.2 percent.

Duguay blames the failure on the lack of personal finance teaching in schools. Jump$tart's goal is to ensure that students are financially competent by the time they graduate from high school.

She says parents have to get involved if they are going to allow their children to use credit cards. "It takes supervision. If a parent has a co-signed card, they need to sit down with them and show them what interest rates are.

"Credit cards can be a useful thing as long as they're monitored. They can be an opportunity to learn before going into the adult world."

A learning opportunity
Jump$tart, along with myvesta.org, formerly Debt Counselors of America, helped Capital One develop brochures that are stuffed into their teen customers' monthly credit card statements. The inserts explain subjects such as introductory rates, understanding the card statement, how compounding interest works and managing finances.

"We get letters all the time from parents saying the card is a really good tool," says Don.

Other issuers seem to be watching and waiting before they jump into the teen segment. "We do perceive it as an interesting market," says Deborah J. Pulver, spokeswoman for Fleet Financial, another top card issuer.

"That's not to say we won't do something in the future. We need to make sure there is an educational component with that as well."

Issuers such as Capital One who are reaching out to minors with major credit cards must follow the same federal disclosure laws they do for marketing to adults. Whether they are selling by mail, telephone or the Internet, banks are required to reveal costs such as annual fees and finance charges.

"Before the customer pays, the seller has to disclose who they represent, the nature of the goods and services and the total cost," says Carole Danielson, an investigator in the Federal Trade Commission's division of marketing practices.

Usually school districts have control
Other rules -- such as whether card companies can visit high school campuses the way they do colleges -- fall to the states. States, in turn, usually give that authority to local school districts.

If the policies of two of the nation's largest districts are any indication, parents don't have to worry about card companies setting up sales tables at their kids' high schools.

"If it's flat-out solicitation, we don't allow it," says Janet Cass, who works for the Broward County School District, which includes the greater Fort Lauderdale-Hollywood, Fla., area and is the nation's fifth largest. "If the sole purpose is to come in and sell a product, such as signing up kids for credit cards, there is no educational value in that."

The Los Angeles Unified School District, the nation's second largest, also prohibits solicitation on school grounds. "We do not allow commercial ventures to come on to our campuses," says Dan Isaacs, assistant superintendent for school operations.

Cass says a lender might be allowed to talk to students about credit card use and financial management, but those requests are carefully screened by a committee that scrutinizes lecture outlines and materials.

Card companies still have ways of branding their names on young brains. Many schools work with corporations to sponsor events. As a result, the lender might be allowed to hang a banner in the gym or stadium.

Cass, who works in the Broward district's partnership division, says they are approached by all sorts of interests. "You see companies just drooling over the large market of kids," she says. "They are a captive audience."

She says American Express is very involved with the district, paying for luncheons and other events.

"It's a public relations move to get their name in front of kids and parents," she says.

Isaacs says credit card companies can advertise in the school newspaper "just like they would in any paper."

Most credit card forms stipulate that the applicant must be 18 years old, but just as there is no way to ensure a mischievous minor won't sneak away to puff a cigarette or swig alcohol, there is no guarantee a credit card won't fall into the wrong hands.

"A few years ago, I had a 6-year-old cousin who found a credit card application," relates Cass. "He took it upon himself to fill it out and mail it in. They sent him a credit card in his name.

"He's 13 now and his mom still has it taped to the refrigerator," she says. "I guess he had a pretty clean credit report."