Talking to your kids about money can help show them how to manage their allowances and they'll feel that their opinions count. It also gives them early training in decision making. However, according to some experts, teaching your kids about personal finance can only go so far. Some children seem to be "born" thrifty while others are incorrigible spendthrifts. You'll need to discover your child's money personality and then find ways to work around it. Try to tailor your strategy to your child's particular quirks.

        Teaching some basic aspects of financial reality to very young children is possible, but only if you explain things in age-appropriate ways. Your child can learn by example in terms of the things they understand. Relate money to their favorite toys, as in we can afford a certain number, but we can't afford them all. Tell them that money must be earned and that is what parents are doing while they are at work. More money would mean more hours at work and less time with their parents. They'll understand the relationship between work, time and money.

        Children need to be given the tools to manage their money appropriately. A child can't learn to manage their money unless he or she has enough of it to matter. Therefore, a realistically generous allowance is important. Most money experts suggest starting that allowance from age 5 to 7. But at whatever age you decide, encourage your child to carry their money around, to enjoy it, and encourage them to spend it occasionally. They'll learn the relationship between what they have in funds and what their money can buy.

        Often, parents link allowances for older children to doing chores, or conversely, punish them by withholding allowances. Neither is a good idea, according to many child psychologists. Chores should be considered an expected contribution to the family, not some favor they do for the money. An allowance should be something they can count on and use other forms of punishment for failure to complete chores.
 

FOUR STEPS TO FISCAL RESPONSIBILITY

        The basics of money management include learning to plan, save and spend wisely, as well as how to keep records of what has been spent and saved.
 

• BUDGET: Most of us think of a budget as our enemy; in fact, it's our ally. In reality, a budget is nothing more than a simple spending plan. Sit down with you child and jointly decide what he or she is going to purchase with that week's allowance. The allowance should be generous enough to cover necessities such as school supplies and lunch money, as well as a few non-essentials. This forces the child to allocate the funds to the essentials and then decide what to splurge on with the remaining disposable income.

        As your child grows older, the allowance should increase to accommodate growing needs. By the time the child is in junior high, the allowance should cover ALL personal expenses, including clothing, entertainment, gifts, school supplies, and miscellaneous items. By that age, your child should be able to plan ahead for a year instead of just a week or a month. But- and here's the key point for the parents to emphasize- the child must budget the money wisely. There will be no more money when the allowance runs out. You are leaving them in control and only hand over more money on "payday". (If you've chosen a monthly allowance, only pay them once a month with no handouts in between.)
 
• LEARN TO SAVE: Tell your children that a savings account is like their safety net. If they know it's there, they can work on perfecting their budget, secure in the knowledge that help is there if they need it. So, when your child reaches age 8 or 9, transfer the piggy bank to a real bank. Go with the child and help them open an account in person and let them keep the monthly statements in their desk. They should also make their own deposits and when they're a little older, balance the account on their own.

 
• LEARN WISE SPENDING HABITS: Let your child make a foolish purchase now and again. If it's foolish enough, it will probably never happen again. Once they spend a month or two in the poor house, they'll be permanently more prudent about splurging.

 
• PUT IT IN WRITING: The greater the child's mastery at putting a financial situation and transaction in writing, the less likely they will be to end up in the red. Once a year, help them draw up a simple balance sheet listing assets (bike, stereo, savings account, etc.) along with a list of liabilities, such as loans from you. You should also insist that all loans are paid back the "grown-up" way, WITH interest. They will learn first-hand that the "free money" promised by credit cards that they'll encounter later on, is not actually free at all. Not only will they need to pay it back, they'll need to pay somewhat more than what was borrowed.

 

        Before they leave the nest, your teens should already have experience with a checking account, a basic tool of sound money management. When your kids are 12 or 13, they can open a two-signature checking account. This will keep them (and you) safe while your kids are learning the ropes on checking accounts. Older teens who have shown financial responsibility should be encouraged to open their own individual accounts. You can even pay their allowance by check.

THE PAYOFF

        Teaching your child these lessons takes some patience, thought and effort on the parents' part, but the alternative is far worse. Once you children have the tools to be financially responsible, they'll be far less likely to need your support or bail-outs in the future. In the long-run, the money you save will be your own.