HOW TEENS CAN AVOID THE PITFALLS OF CREDIT CARDS

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BY LEAH KARLINS, Read This! writer

Carmen Ionscu, a freshman at San Jose State University, pays off her two credit card bills every month by working 25 hours a week at OfficeMax. Juggling work with a full college course load isn’t easy, but Ionscu is determined not to get into credit card debt.

“My sister had a problem with that. She spent way too much in her college years,” Ionscu said. “I think you become addicted at one point, because you just slide the card.”

Credit card management is just one of many new financial decisions facing teenagers as they graduate from high school and enter college or join the work force.

“You start getting credit card offers, you start getting offers to open investment accounts, you usually get a job and have to make decisions about your taxes, about retirement benefits. And so just about the time you get out of high school, there’s an awful lot you need to know,” said Laura Levine, executive director of the Jump$tart Coalition for Personal Financial Literacy, a group that teaches money skills to young people.

‘It adds up’

Ionscu said many of her peers do fall into the trap of only making the minimum payment on their bills, and are then hit with steep interest rates for their debt. “It adds up,” she said.

Janelle Klafter, a senior at Azusa Pacific University, has seen the consequences of that kind of financial ignorance firsthand.

“A lot of my friends have had horror stories of just pulling out a card because it’s really easy, and then when the bill comes around, not having enough money to pay it off,” she said.

They are not alone. More than three-quarters of undergraduates began the 2004 school year with credit cards, and they carried an average outstanding balance of $2,169, according to a study by Nellie Mae, an organization that administers college loans.

Janet Bodnar, author of “Raising Money Smart Kids,” proposes a simple way for freshmen to avoid sinking into credit card debt: Don’t get a credit card.

“I would just wait,” she said. “It’s just too easy to acquire the debt and to find yourself in trouble. And you don’t want to be graduating from college owing money on a credit card for pizzas that you already ate and clothes that you don’t wear anymore and old boyfriends.”

Bodnar recommends that teens begin learning to manage money as soon as they get their first part-time job by opening a savings account with an ATM card for making cash withdrawals. Once they master that, they can advance to a checking account with a debit card to make direct purchases.

“When you go off to college, that’s all you would really need,” she said. “You can manage it that way for the first couple of years. And then once you feel confident that you can manage the cash account, then you can apply for the credit card.”

Mortgage broker Philip X. Tirone, author of “7 Steps to a 720 Credit Score,” disagrees. He says that if teens are serious about building their credit score, they should open three credit cards as soon as they turn 18, and “simply charge one thing on it per month and pay it off in full each and every month.”

Experts do agree that the keys to financial success are financial education and responsible spending. At the Santa Clara County Federal Credit Union (or SCCFCU), teen members who read seven lessons on financial topics such as budgeting skills, credit cards and loans and then successfully pass comprehension quizzes receive $50 that is put into their savings accounts.

“We feel very confident and comfortable with the fact that you’ve walked away with an education that will help you make these decisions as you move on,” said Angela Hughes, director of business development for the SCCFCU, which offers free membership for public high school students in Santa Clara County. “Being armed with the education is going to help.”

Protecting your credit score

Klafter, the student at Azusa Pacific, got her first credit card during her junior year of college, when she moved out of the house.

“I know since I’m graduating, I need to start building credit,” so that she can look for an apartment or apply for a loan on her own, she said. But many teenagers don’t know what a credit score is or why it matters.

“Basically, a credit score is a three-digit number that ranges from 350 to 850 that, over your lifetime, will have a six-digit impact on your life financially,” Tyrone said. “It can be the difference between getting a job and not getting a job, or the difference between qualifying for a 2 percent loan on a car and a 12 percent loan on a car.”

He cautions, “Those who think that credit score is 'something I’ll learn about later,’ ” will be in for a shock when they go to make their first big purchase.

Luckily, students interested in learning more about personal finance have plenty of resources, said Levine of the Jump$tart Coalition.

“There are tons of options, and I think that the trick is getting young people to go out and search for it,” she said. “There is an absolute wealth of information, particularly on the Internet.”

Leah Karlins is a senior at Branham High in San Jose.