Financial Educators Take Aim at Bank's Youth Credit Card
A national education group has decided to fight the plan by a Denver bank to issue what it says are the nation's first credit cards for children.
In letters sent this month to banking, financial-planning, and school groups, Loren Dunton, president of the National Center for Financial Education, asked for support in a campaign to oppose the action by Denver's Young Americans Bank, a two-year-old institution established to serve customers under the age of 22.
"I'm afraid other banks will pick up on this because it's so lucrative," said Mr. Dutton, who contended that banks have a lot to gain by opening up a new, younger market for their credit services.
The Young Americans Bank announced last month that it will offer MasterCards to its depositors age 12 or older.
The cards, which will be processed through the United Bank of Denver, are being offered with a $100 credit limit at an annual interest rate of 18.8 percent, plus a $15 annual fee.
According to Leanne Cadman, a loan officer with Young Americans, more than 200 applications have already been received from depositors.
"We see this as an important educational tool to teach children how to go through the process of applying for credit, learning about budgets, interest rates, and annual fees," she said.
"Adults who get into trouble with credit cards probably never really understood how this system works," she added. "We teach children that, if you use this card to buy something, you've got to have something to back it up."
But officials of the financial-education center, a nonprofit group based in San Diego, argue that the credit plan will undermine efforts to teach children the importance of saving money.
"Adults have problems with debt because they can't alter their spending habits," said Paul Richard, the center's vice president and director of education. "You'll never make a 'saver' out of someone if you can't alter their spending patterns."
"The Young Americans Bank credit card supports the indoctrination of children into this spending mentality in America," he asserted.
The ncfe's campaign is aimed at persuading teachers, parents, accountants, financial planners, and others in the banking field to oppose the plan. Among the organizations contacted by letter have been the American Banking Association, the International Association for Financial Planning, the National pta.
Mr. Dunton, in addition, met with Young Americans officials last month to propose that the bank offer debit or cash cards, which would require users to save $100 before beginning to spend, instead of extending credit.
The financial-education group, headquartered in San Diego, has about 500 trained instructors in schools and an additional 300 speakers available for lectures, according to ncfe officials. The six-year-old organization promotes the view that saving money is the key to financial security for both individuals and the nation.
Ms. Cadman of Young Americans said the opposition so far has not dimmed interest in the program by both children and their parents.
"Parents love it especially, because their children can have something to fall back on in case of emergencies," she said, adding that card applicants under age 18 must have a parent co-sponsor to receive credit.
Ms. Cadman said that the bank, which is federally insured and currently has about 9,700 depositors, also has about 1,000 young loan customers. Those borrowers, she maintained, are "very responsible."
"We have no problem collecting on our loans," she said.
Because the bank's goal is to provide education in handling personal finances, she added, Young Americans officials encourage children to open savings accounts before taking advantage of other financial services offered.
Meanwhile, the ncfe is offering buttons that say: "Warning: Credit cards can be dangerous to your wealth."
"If we can't get the bank to compromise," Mr. Richard said, "maybe we'll at least get them to put warning stickers on each card issued.''