Credit Score Articles

Financial Literacy Serves Young Ones Well

The Credit Card Accountability, Responsibility and Disclosure Act of 2009 prohibits people under 21 from obtaining credit cards unless they have a co-signer or can prove that they have sufficient means to pay off a balance. But that does not mean they have to remain financially illiterate, according to a recent report by the Arizona Republic.

Arizona native Sharon Lechter has sponsored financial literacy through her Scottsdale-based organization Pay Your Family First and will soon speak at two Phoenix locations about how teenagers can avoid debt. About a quarter of these individuals understand how credit card fees work, according to, while many expect to earn $145,000 a year immediately after graduating from college.

Educating these individuals about their financial responsibility may be the first step in giving them access to credit, which may be necessary for those hoping to build up their credit history. A strong credit history can help individuals obtain favorable interest rates on mortgage or auto loans as well as insurance premiums.

"It's amazing what happens to these young people's self-esteem when they realize they can rely on themselves and not an employer or the government for their well-being," Lechter was quoted as saying.

Some of this solution may start with the parents, many of whom serve as role models for teenagers. A recent survey by showed that 68 percent of respondents were influenced by their parents' spending or savings habits, compared with the 16 percent who were influenced by friends. Fourteen percent sought inspiration through books, TV, magazines, radio and celebrities, while 24 individuals looked toward their teachers for influence.

Still, the grades teenagers gave their parents indicate that many may have room for improvement. Seventy percent said their parents' silly purchases or limited discussion regarding money management would earn them a B or C grade. One-third of the respondents gave their parents an A for serving as excellent role models and teaching them everything they know about financial responsibility.

Parents considering co-signing on their child's account should consider the possible consequences. While it may give them the credit necessary for future purposes as well as a source of emergency funds, children who are not responsible can badly damage their parents' credit scores by falling behind on payments. A debit or prepaid card might deliver the money-management practice they need before stepping into credit.