Criminals with a lot of time on their hands are committing a con that can take years to pay off and sounds like something out of the future: Synthetic identity fraud.

Instead of the traditional identity theft of stealing an existing identity from someone and posing as them, synthetic identity fraud criminals create a new synthetic identity by stealing real Social Security Numbers from people who aren’t actively using them. Identities with fake addresses, birth dates and names are then set up and over years the thieves build credit for the fake IDs they’ve set up as “synthetic” identities.

Eventually, they pile up debts on fake credit card accounts opened with synthetic IDs and walk away without ever paying the bills.

It’s a con that can take years to accomplish. It can also take years to uncover because it’s targeted at people who don’t regularly use credit — children, and in some cases, senior citizens who don’t use credit much. For children without a credit history, thieves can have a clean slate with a stolen SSN to create a synthetic identity and max out a credit card years later.

More than $6 billion in losses were attributed to synthetic identity fraud in 2016.

This type of fraud could have become easier in 2011 when the Social Security Administration changed how it set SSNs. The three parts of an individual number used to correspond to other data points for a specific person, such as their year of birth or state where they were born.

The SSA changed the system to randomly create new numbers, which it thought would make it more difficult for thieves to guess someone’s SSN by using other public information available, such as a state or year of birth.

But the change made it harder for banks, health care providers and others to verify if someone was using a SSN fraudulently.

Changes Proposed to Battle ID Theft

Children could have their credit scores and financial futures ruined before they even finish school, said U.S. Sen Gary Peters of Michigan, part of a group of senators urging the Social Security Administration to change how SSNs are used when applying for credit.

The group is proposing that the SSA require financial institutions to match each customer’s identity with their SSN when applying for loans, mortgages and credit cards.

“This commonsense step will modernize the way lenders verify identities, protect children from identity theft and help prevent billions of dollars in losses from fraudulent loans,” Peters said in a statement.

The SSA database is currently only used to verify that SSNs match other ID details for mortgage applications. A written signature from the applicant is required. Peters and three other U.S. senators are asking the SSA to expand the verification process to other types of loans, and to modernize it to allow electronic signatures that could allow synthetic identity theft fraud to be discovered faster.

While the Social Security Numbers that are stolen are real, the birth dates and addresses are made up for the synthetic IDs. Combining the fake information with the real SSN is possible partly because there isn’t an efficient, modern method to confirm that a name, SSN and date of birth belong to a real person, the senators wrote in a letter to the Social Security Administration commissioner.

The issue is made worse by consumers who expect “instant” delivery of financial products and services, the senators wrote.

A Similar Program Exists

A program that’s similar to the one proposed is already in place for private businesses. In 2002 the SSA created a program that’s now called the Consent-Based Social Security Number Verification system, or CBSV. It gives banks the ability, with the individual’s consent, to verify if a name, DOB and SSN match a government-derived source of truth to fight fraud.

One drawback of CBSV, according to the senators’ letter, is that users of the CBSV system must obtain the written, physical signature of the person before accessing the database. That requirement “unnecessarily impedes CBSV’s usefulness in preventing identity theft,” they wrote.

Mortgage applications remain paper-intensive, but many financial services are digital with instant access, and consumers expect quick determinations. The physical signature requirement of CBSV negates its utility in combating synthetic identity fraud, according to the senators.

Instead, the SSA should accept the electronic consent of an individual to access CBSV, and the SSA commissioner can make this change without new legislation, they said.

The federal government encourages electronic signatures through two existing laws. The Office of Management and Budget encourages the federal government to use a range of electronic signature alternatives.

To keep SSNs and other personally identifiable information protected, the senators wrote that they’re pleased that the CBSV system doesn’t pass along SSNs and other identifying information, but uses machine-to-machine numerical responses corresponding to “yes,” “no,” or “deceased.”

Other Solutions

Some financial institutions are already doing more to combat synthetic identity fraud. Community banks are requiring customers to show up at a physical branch to open an account or apply for credit.

But in a world where many things are done digitally, that may not be easy for many people. One possible solution is for artificial intelligence engines to comb through social media and other data to confirm an applicant’s identity.

For example, a bank robot could check if the credit applicant uses social media in the city they say they’re from, or if the year they say they graduated from high school can be cross-checked with a yearbook.

Voice recognition technology could be used at call centers to check if a voice has called under a different identity.

For parents who wonder if their children’s SSN have been stolen, a simple way to check is to check the credit reports of their children. Having anything on that report, such as a request for a credit card, should be enough to raise their suspicions.

Aaron Crowe is a freelance journalist who specializes in personal finance topics. Follow him on Twitter @AaronCrowe or at his website, AaronCrowe.net. He also writes about his family’s finances at CashSmarter.com.

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The parental refrain “Do what I say and not what I do” isn’t a wise one in many respects, but especially when it comes to financial talks with your kids.

Parents lead by example and if you’re racking up credit card debt you can’t afford, then you may be teaching them bad money habits.

Such oxymoronic advice can be confusing. The 2017 Parents, Kids & Money survey conducted by T. Rowe Price found that 48 percent of respondents have a credit card balance of $5,000 or more. Those parents are more likely than those who don’t to have kids who:

• Spend money as soon as they get it — 58% vs. 44%.
• Expect parents to buy them whatever they want — 65% vs. 57%.
• Say parents confuse them when talking about money — 67% vs. 51%.
• Say what parents say about money is different than what they hear in school — 65% vs. 53%.

Credit Before Car

How to get around all of that? Get your child a credit card, of course. It’s not as implausible as it sounds.

By working to lower debt and having continuing, honest discussions with their children about how to best use credit, parents can help their children start on the path to having good credit and being smart with money, years before they have a driver’s license.

The first difficult hurdle to get over is a reluctance to discuss financial matters with your kids. The T. Rowe Price survey found that 69% of parents have some reluctance to discussing money with their kids. Parents who have more than $5,000 in credit card debt are more likely than those who don’t to be reluctant, 35% to 21%, the survey found.

A piggy bank isn’t the only way kids deal with money. While most have a savings account (55%), 31% have an online or gaming account, 20% have a checking account and 18% have a credit card, according to the survey.

Who pays the credit card bill? Fifty-seven percent said they do as parents, and 41% said their kid pays the credit card bill.

How to Start Giving a Kid a Credit Card

There are a few ways to get your children started as credit card users. One is to add them as an authorized user on your credit card.

This will put their name on a credit card that they can use, but for which you’ll still be responsible for paying as the primary cardholder. Their debt becomes your debt, and any penalties for late payments will hurt the parents’ credit score.

To get your child their own credit card, parents will likely be asked to cosign because their children don’t have full-time jobs. This will also leave the parents liable for the bill.

If that seems like too big of a step for both of you, then get them a prepaid debit card that they fund and use like a credit card. It can only be used up to the amount put on the card, so no debt is incurred.

The BusyKid Visa prepaid spend card lets kids spend their allowance in stores. The card has a $5 annual fee and is issued in the parent’s name, but also has the child’s name on it. Parents can add money to the debit card by charging with their credit card.

What to Teach Kids About Credit

There are many ways to teach kids about money beyond setting a good example. Long before you give them a debit or credit card, you can show them what the inside of a bank looks like, take them shopping with a budget in mind, discuss the cost of college, figure out how much tip to leave at a restaurant or how much sales tax will be charged, and discuss why you can’t take a bigger vacation this summer.

Their teenage years are probably the best time to learn about credit. Before that, they should get a good foundation in money education by earning an allowance, having the freedom to spend their own money, and borrow money from you a few times to see how loans work.

Long before the credit card issuers send your kids applications in the mail to apply for new credit, here are some things to teach your children about credit cards:

1. This isn’t your money. A credit card can buy you all sorts of things without having cash in your hand, but it isn’t your money. A credit card lets the user borrow money as long as it’s repaid. The longer it takes to repay that money, the more interest they’ll be charged.

2. Purchases are limited. Credit cards have a credit limit. It’s a maximum amount that can be borrowed on the card, and charging more than that will cause the transaction to be denied.

Having a low credit card balance will lead to a better credit history. The balance should be 30% or less of the credit limit, so a $1,000 credit limit shouldn’t have more than about $300 charged to the card.

3. Pay on time and in full. Missing a credit card payment will hurt a credit score and mean paying interest and a late charge. If a credit card balance is unpaid for too long, creditors may sue to collect.

4. Only spend what you can repay. Teaching kids to be responsible is one of the big tasks of parenting. With a credit card, it’s important to get them to think ahead about how they’re going to pay the credit card bill about a month after they’ve bought something with it. They’ll need to learn to think ahead to the immediate future, and know that you won’t be bailing them out with a loan to pay their bill.

5. How a credit card will help or hurt their future credit use. Just like school, teens are being graded in how they use their credit card. They’re not being graded in what they buy, of course, but in on-time payments, how much credit they use and other things that affect a credit score.

Learn what goes into a credit score and go over them with your children. A high credit score helps people qualify for better interest rates and loans in the future, such as a car loan or paying a lower security deposit when renting an apartment. Credit mistakes made now could make it more difficult years later to get a job, get a good loan or rent an apartment.

Aaron Crowe is a freelance journalist who specializes in personal finance topics. Follow him on Twitter @AaronCrowe or at his website, AaronCrowe.net. He also writes about his family’s finances at CashSmarter.com.

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