Kids need to build own good credit

Question: Regarding your recommendation that parents not co-sign for a child's credit card, did you consider that the child could take advantage of the parent's credit score to get a lower interest rate on the card?

Answer: Sorry, but that argument doesn't change my mind. It's certainly desirable to have the lowest possible rate on your credit card, but young people just starting out shouldn't expect to get the same terms as someone who has spent years compiling a good credit record.

When new borrowers have made a year or so of on-time payments, they can always ask for a lower interest rate, or switch to another card. And if the bill is paid in full each month, the interest rate doesn't matter anyway.

The main point is that parents are under no obligation to give their children credit or the benefit of their own credit history. They do have an obligation to teach kids how to manage money responsibly so that the kids can build their own credit record.

Question: I know you believe kids should stick to "cold, hard cash," but what about a debit card? That would link them to a checking account that contains a finite amount of money.

Answer: A debit card is the logical next step once a child has learned to manage cold, hard cash — especially if the card is linked to a checking account with the child's own money, not yours. I recommend debit cards for older kids when they head off to college, but I'd tread carefully with younger teens until they're ready. See the letter below.

Question: I just wanted to applaud you on your column "Kids and Credit Cards Don't Mix." Both my children, who are 13 and 14, have debit cards, but only to make deposits in their bank accounts. They've been saving a portion of their allowances and gift money from an early age, and they've accumulated almost $8,000 between them.

They use cash to purchase items, and I can see the look on their faces when they have to count out the bills. It sure makes them cringe when they have to part with $20 or whatever.

I'd suggest that even using a debit card for purchases is a bit like "magic money," as you say. Punching in a few numbers on a keypad is a lot less emotionally painful than counting out the equivalent amount of cash.

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Have a question about kids and finances for Dr. Tightwad? Write to Dr. T at 1729 H St., N.W., Washington, D.C. 20006. Or send the good doctor an e-mail message (and any other questions for this column) to jbodnar@kiplinger.com.