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Archive for Sunday, November 5, 2000

Companies lure teen-agers to take plastic plunge

Visa Buxx, PocketCard, Cobaltcard and M2 angle for share of growing market worth up to $153 billion

November 5, 2000

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The child it could be your own stands in the aisle of some mammoth retailer, assuming that whining pose. With eyes wide and teary, the youngster points at a toy on the shelf, reaching a level of hysteria with each arm thrust.

I-want-it I-want-it I-want-it.

The parental response? A simple, deliberate "no."

Jump forward to adolescence. A new vocabulary has developed.

If I don't have that (shirt, pair of shoes, shiny new vehicle), I'll die, I'll just die.

"No."

Are you trying to kill me?

Fun, right?

Well, now there's a new word sure to come out the mouths of the nation's teens one that parents thought they'd be able to avoid until at least college. Ready? Here it comes...

Visa.

More than a decade after extending credit to the nation's college students, Visa and many of its affiliate banks are making the experience of slapping down their own plastic available to teens.

This summer, Visa introduced Visa Buxx, a new card touted as a safe alternative to cash. Closer to a debit card, it allows kids to charge only until the money runs out.

In the credit industry, which processes $1.2 trillion in purchases every year, this is the next frontier.

Visa Buxx joins at least two other cards on the market, PocketCard and Cobaltcard. A fourth, M2, is set to launch soon. Together, their makers hope to grab a share of more than 30 million teens who live in a largely cash-only world.

"This is virtually an untapped market," said Kenny Thomas, a Visa spokesman. "We anticipate this will be one of our most successful new products."

To many, giving anyone, let alone minors, another way to spend money at a time when personal savings are at an all-time low is irresponsible. Their hope is that when teens say they absolutely must have the new cards, their parents will say "tough."

"I can't help but question their motives with this one," said Travis Plunkett, legislative director for the Consumer Federation of America, a consumer watchdog.

If you're not quite sure what these new cards really are, or why they're coming out now, it might be best to use an analogy and then a number.

Training wheels

The analogy is easy: Think of training wheels for a bicycle or a learner's permit for a driver. Visa Buxx and the others look and largely act just like a credit card. But, like the training wheels, they limit what kids can do with them. Parents put money on them; once the kids spend it all, it's gone (until mom and pop add more).

Here's the number: $153 billion a year. It comes from Teen Research Unlimited, which surveyed about 2,000 teens about what they spent in one week, figured out what that meant over a year just under $5,000 a teen and multiplied that number for the whole 30 million batch of them. Another company, the Rand Youth Poll, performed a similar survey, coming up with its own figure, $129 billion a year.

Either way, it's a big number. As the biggest generation since the Baby Boom, this group has been courted like none before.

"There are lots of companies out there that are wondering how they can tap into the teen market," said Michael Wood, a vice president for Teen Research Unlimited. "It's the sheer size of this demographic that marketers are obsessing about."

Visa and other companies say using the cards will make teens smarter about spending.

Before issuing a card (after a parent's approval), Visa Buxx requires a teen to go through a quick financial test. Answer eight questions correctly (the text next to the questions all but tells you the right ones) and the card is yours.

This is where the training wheels come in. Teens need their parents to put money on the cards. The companies then provide detailed spending reports to the parents, tracking how the money is spent, whether it's at a store, online or at an ATM.

The push, card marketers say, is to create smart consumers who won't get into trouble when they get their own credit cards, preferably soon after they turn 18. The logic, as expressed by PocketCard's Charlie Jolie, is of the learn-through-doing variety.

"The best teacher is getting denied at the point of sale because you've been spending too much," he said. "After that they'll spend wisely."

But critics of the new cards and even some who've endorsed them don't buy it.

Thomas said Visa was doing more than necessary by making educational materials available. It's not up to Visa, he said, to make sure people use them.

"We can't police it," he said. "If we did, it would become so cumbersome that it would become an issue. We didn't want to disappoint the teens."

In a marketing sense, this is really all about pleasing the teens. After all, they're the target. If they don't like the new cards, they fail.

'Relationship building'

Thomas admits Visa wants teens to identify themselves with the company, starting at 13. The company's own research found that 13- and 14-year-olds like the card best.

"This is a relationship-building tool," he said. "If a teen has a U.S. Bank Visa Buxx card, then U.S. Bank hopes it will be able to have a relationship with that teen further down the line."

That relationship ultimately could include car insurance, health insurance, mutual funds, a mortgage or a loan to buy a car.

Robert Manning, a sociologist at Georgetown University and author of "Credit Card Nation," said teens prove very loyal if they're introduced to a brand early enough.

"If they can do it, they'll have this incredible revenue stream for life," he said.

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