A reader recently pointed me towards an interesting article at MSN MoneyCentral on the topic of restricting the access that teenagers have to credit cards. Much of the article discusses the proposed Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (S. 414, sponsored by Chris Dodd, and often called the Credit CARD Act of 2009), which Weston summarizes as such:
The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 would forbid card issuers from opening accounts for people under 21 unless one of these criteria is met:
+ A parent, guardian or other responsible individual agrees to co-sign for the debt.
+ The applicant provides proof he or she can independently repay the debt.
+ Proof is provided that the applicant has completed a certified financial literacy course.
I understand where this bill is coming from and I agree with it in large part, but I would be opposed to it overall. Let’s look at both sides of the coin.
What I Like About the Bill
When I was a new college freshman, I signed up for a credit card in exchange for a t-shirt, then I began to use it for all kinds of stuff – video games and so on. In short, I acted like a fool with that credit card – a card I would have never had if this act had been in place.
A bill like this would unquestionably have kept me from getting into this early credit card debt. My parents would not have signed off on such a card and thus I would have been forced to learn how to manage the money from my part-time job more carefully, teaching me some valuable budgeting lessons.
I also strongly agree with the idea of basic financial literacy being a requirement for credit card use, though I’m not convinced at all that this is the way to do it.
What I Don’t Like About the Bill
What I don’t like about the bill is that it takes away personal responsibility in two different ways.
On one side of the coin is the fact that many people under the age of 21 are fully independent and have their head on their shoulders. One individual I know had a very successful business he was running himself at age nineteen. I know several others who have been through trade school and are embarking on plumbing and electrical careers at that age. Why should these independent and self-motivated individuals be required to find someone to co-sign with them for a credit card?
On the other side of the coin is the lessons learned from credit card ownership, which might actually be easier before age twenty one for many. I didn’t figure out how to use credit cards sensibly until age twenty seven, but I’ll be the first to admit that I didn’t receive a great education on how to use them and what their role should be in your life. If I had, I might have been able to make sense of my earliest credit card troubles (when I was in college) when the amount of debt wasn’t that much at all. For many people, college is a time to learn and make mistakes and grow – this bill just offers more hand-holding.
For me, the negatives of this bill outweigh the positives.
Is There A Better Solution?
The solution needed here is pretty simple – there is a desperate need for better consumer education. Consumer education should be a part of the school system from the earliest stages. Reading, writing, and arithmetic are fundamental, but so is managing your money – not knowing how to do that in the modern world can derail your life.
Instead of sponsoring bills that restrict the freedoms of adults, why not invest a bit more in education and a bit less in other areas?
What do you think? Is the Credit CARD Act of 2009 a good thing or a bad thing on the whole?