Graduated Credit Cards For Young Adults
November 27, 2008
One of the ways the credit card companies get their hooks in you is by targeting young adults. They offer them the ability to buy all the things they really want but can’t afford, at a time in their lives when they are probably not making a lot of money.
I know this first hand, having been bitten by the credit card bug when I was in university, where there were credit card applications placed strategically all over campus.
Once they get you started, it can be a long road back from the debt that accumulates.
If it were up to me, there would be some kind of “graduated licensing” system for young adults and credit cards. Kind of like getting a drivers license in many areas - there are multiple levels of licenses, depending on experience, proven skills and more.
Here is what I would suggest…
1. The “Learners” Credit Card
The first stage would be a learner’s card, which is really just a prepaid debit card. It can be used just like a credit card, so the convenience is there, but it needs to be prepaid.
So you would have to put a $1000 deposit on the card before you could spend $1000 on it.
2. The “Novice” Credit Card
The second stage would be a novice credit card. The card would switch to this level after either a certain amount of time has passed or a certain number of transactions have been done (or both).
At this stage, you could use the card to buy things on credit, but the balance would have to be paid off every month. No revolving credit, just the convenience of having the credit card.
3. Graduation
The third, and final, stage would be a standard credit card with revolving credit, like most cards you would get now.
Once someone has proven they can handle the “novice” level responsibly, the card would switch over to a revolving credit card like any other card. At this point, they could buy things and not necessarily pay off the entire balance every month.
But hopefully, having been through the first two stages, they would be conditioned to pay off that card and debt wouldn’t accumulate as much, if at all.
Just like you wouldn’t hand your car keys to a 16 year old who has never driven before, I don’t believe you should hand credit to a young adult who has never learned how to manage it properly.
I’ve written before about how I believe the school system needs to teach financial management skills from an early age, but that’s only half the equation in my opinion.
Unfortunately, the graduated credit card is unlikely to ever happen since the credit card companies make so much money from people who overspend on credit.
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I love the concept. I also think that they should have to take some sort of test on the terms, etc to make sure they know what they are getting themselves into. So many students and I’ve seen it in my friends just go out and spend their money like it’s nothing.