Survey: More teens take on debt, use plastic

by Center for Personal Finance editors

SAN FRANCISCO (4/26/06)--Teenagers ages 13-18 are engaged in adult spending habits, but they're unaware of the implications of their spending decisions, according to the third annual Teens & Money survey released last week by the Charles Schwab Foundation (PRNewswire-FirstCall April 19).

A growing number of teens are saying "charge it" and accumulating debt. About one-third (31%) of teens surveyed admit owing money to a person or company, and 14% say they already are more than $1,000 in the red. For older teens ages 16-18, that latter number jumps to 22%. Almost half (46%) of teens who owe money say they're concerned about paying it back.

According to the survey of 1,013 American teens, 34% say they get money from (or use) a credit or debit card. Twenty percent report the card is in their parents' name, and 14% have credit in their own name.

Parents still are the teens' preferred and primary money mentors, yet the teens question their parents' financial well-being, citing concerns about paying bills and saving for college.

Almost two-thirds (61%) of teens believe they'll be more successful financially than their parents, yet their money management skills don't measure up. Sixty-one percent of teens say they know how to write a check, but only 41% know how to balance a checkbook. Only 48% admit they know how to budget their money.

Make sure teens understand the strategies for smart borrowing:

Know the terms and conditions of each card before you sign up. If you don't understand, ask questions.

Don't go into debt for items you don't really need. Bills for items purchased on credit shouldn't exceed 10% to 20% of your monthly take-home pay.

Limit yourself to one credit card. Shop around for the best deal. Credit unions typically have lower rates on credit cards and loans.

Pay off credit card balances in full each month. If you only pay the minimum due--2.5% of the unpaid balance or $10, whichever is greater--on a $1,000 balance with an interest rate of 13%, it will take you almost 10 years to pay off the balance. That assumes you don't charge anything else during those 10 years.

Combine credit use with a savings plan. After you pay off a loan or credit card, redirect that same monthly payment to your savings account.