Laura Rowley Money & Happiness

A decade ago, when someone asked me if a high school student should have a credit card, my answer was a resounding "no." You might say I've made a 180-degree turn to the dark side.

No, I'm not getting paid by the credit card industry. I think those companies are a potentially dangerous enemy, and you have to prepare your child to be a worthy opponent in battle. You want them to conquer this prospective foe, and transform it into a humble servant that does their bidding.

Conquering the Conquerors

Plastic, for better or worse, has become ubiquitous. As I wrote in an earlier column, Chase bank has been sending my kids -- ages 4, nearly 8, and 10 -- credit card solicitations ever since I signed them up for a Continental frequent flyer program. This despite calls to the company asking it to stop.

So your kids have two options: 1) Become enslaved by late fees, finance charges, and high interest rates on mortgages and other loans, or 2) Conquer plastic and use it to build a stellar credit score, get cash back, and earn free travel perks. The sooner they understand their options, the better.

Think of credit cards as similar to online social networking -- another phenomenon that didn't exist when I was a kid. Do I ban my kids from using the computer? Of course not; we discuss which sites are safe, which sites aren't, and why they should never give anyone personal information online.

The College of Hard Knocks

If they aren't getting them already, teens will be inundated with credit card offers the second they set foot on a college campus, where they'll be urged to sign up in exchange for a T-shirt or Frisbee. According to a study by student loan firm Nellie Mae, the average college freshman has $1,500 in credit card debt, and that figure doubles by the time they graduate. Some 56 percent of college seniors carry four or more credit cards.

That's when the real trouble starts, because if teens lose the battle to understand and manage credit cards at 18, the damage can haunt them for years. An estimated 70 percent of employers check credit scores before they hire. Over time, a low credit score will suck tens of thousands of dollars out of your child's pocket when they seek financing for an auto or a home.

The damage is far more enduring than, say, flunking a college course -- and yet kids get a heck of a lot more training in study habits. A 2007 survey on teens and money by Charles Schwab found just 30 percent said they think their parents are concerned with making sure they learn the basics of smart money management. Only one-quarter said they've learned how to use a credit card responsibly. And they crave parental guidance: Nearly two-thirds would rather learn through experience than in a classroom.

Half of teens agree it's easier to buy things with a credit card than with cash. Twenty-nine percent prefer to use plastic instead of cash, the study found. That's not the majority, but the number is skyrocketing: It jumped 61 percent between 2006 and 2007.

Prepaid Preparation

Start your teen off with a prepaid credit card. You can load the card with cash, and when it's gone, it's gone. Meanwhile, you can monitor where your teen is spending the money by tracking the card activity online. See my blog for tips on teaching teens to budget.

The big drawback: Prepaid cards have a plethora of fees. First, consider the number of transactions you expect your teen to make each month. Some cards charge $1 to $2 per transaction, while others charge a flat monthly fee of a few dollars. You'll often pay to load money onto the card, as well as ATM fees of $1 to $2 on withdrawals. Your teen should check their balance online, because a balance request by ATM or phone will trigger another fee. (See this chart for a comparison of four prepaid cards.)

Look for a card with no overdraft fees, as these can add up quickly. And watch out for stupid fees: Some companies charge $150 to activate a card, and a customer service call to Valor Prepaid MasterCard costs 90 cents per minute.

Allowing Kids Big Buxx

Among the cards specifically marketed to teens, Visa Buxx and Allow MasterCard offer a fairly good package. Visa Buxx is the oldest player in the teen money field, and the cheapest upfront. It has no transaction fee or monthly maintenance fee; some banks that issue the card charge no load fee if you link the card to their checking account.

But watch out: Visa Buxx hits you with an overdraft fee (Wachovia's is $20 per overdraft). Teens learning to manage money could run that up pretty quickly.

Allow MasterCard is more expensive -- about $45 in startup fees and a flat $3.50 monthly fee. But there are no overdraft fees, and the card can be loaded for 75 cents if linked to a checking account. Allow also offers 35 nifty automated controls, so parents can limit the amount spent per week, the amount spent at any one merchant, and so on. For instance, a parent can load $100 at the beginning of the month and limit the spending to $25 a week. (This helps save on loading fees.)

You're the Role Model

A survey conducted by Allow found that by the end of the month, 95 percent of parents had no idea how much they had given their children to spend, says Tom Smith, who founded the Arizona-based company two years ago.

"It's 'ask and you shall receive' -- lunch money, haircuts, tennis shoes," says Smith. "If parents don't know how much they give kids, how do they learn to be accountable?" Smith gave each of his two granddaughters, ages 12 and 13, a card with $50 a month on it -- but the kids have to manage their funds and cover the $3.50 monthly fee from their budget, or they lose the card.

Once your kid gets the hang of the prepaid card, you can switch to a grownup version that has fewer bothersome fees. Of course, that means you need to be modeling the behavior you'd like to see, by paying off your own credit cards on time and in full every month. You can't prepare your child for battle if you're sleeping with the enemy.

Click here for a comparison of four prepaid cards.