>> Narrator: Is it wise for
a teen to have a credit card?
You may think it's pretty risky,
even if he or she
already has a debit card
and has used it responsibly.
Of course, debit cards only work
if there's money in the bank.
Credit cards, on the other hand,
offer the temptation
of buy now, pay later.
They even work
with no money in the bank,
because the money is advanced
as a loan.
But if that part about pay later
doesn't happen on time,
credit cards
can plunge both teens
and adults into serious debt.
So what's the answer?
About a third of all
high school students
use credit cards,
and those under the age of 18
can get one if a parent
or guardian co-signs
on the account.
Once they turn 18, they can
sign up all on their own.
That's when those tempting
credit card offers
start coming in.
Before then, some parents
help their teens under 18
ease into the world
of credit cards
by co-signing for an account.
There are two practical reasons
for this.
Reason number one:
Parents can help teach their
kids how to use credit cards
wisely, before they go off
on their own or off to college.
But parents should stress
that navigating the potential
risks of credit cards
can be like walking through
a minefield.
Considering the late fees,
high interest rates
and other lurking dangers,
one false step,
and teens may see their finances
go up in smoke.
It's critical they understand
that credit cards are not a form
of supplemental income!
Reason number two:
Once teens have used
a credit card wisely,
and have consistently
paid it off on time,
they'll start building
a good credit rating.
That will help them get loans
in the future for education,
automobiles and even a home.
Spending on credit can be
a powerful financial tool
for teens and adults,
as long as that pay later part
is never ignored.
The trick is to realize
that every credit card purchase
is actually a loan
that has to be paid off,
with real money.